Megan can purchase a new car for $30,000. Alternatively, in addition to a down payment of $2,000, Megan can make lease payments of $475 at the beginning of each month for three years to lease the car. The car has a residual value of $15,000. Assume that the cost of borrowing is 3.85% compounded monthly. Which option is economically better for Megan? In the lease option, what will be the buyback value of the vehicle at the end of two years?

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Megan can purchase a new car for $30,000. Alternatively, in addition to a down payment of $2,000,
Megan can make lease payments of $475 at the beginning of each month for three years to lease the car.
The car has a residual value of $15,000. Assume that the cost of borrowing is 3.85% compounded
monthly.
Which option is economically better for Megan?
In the lease option, what will be the buyback value of the vehicle at the end of two years?
Transcribed Image Text:Megan can purchase a new car for $30,000. Alternatively, in addition to a down payment of $2,000, Megan can make lease payments of $475 at the beginning of each month for three years to lease the car. The car has a residual value of $15,000. Assume that the cost of borrowing is 3.85% compounded monthly. Which option is economically better for Megan? In the lease option, what will be the buyback value of the vehicle at the end of two years?
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