Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Transcribed Image Text:PROBLEM 2
After deciding to buy a new car, you can either lease the car or purchase it on a three-year loan. The car
you wish to buy costs $35,000. The dealer has a special leasing arrangement where you pay $99 today and
$499 per month for the next three years. If you purchase the car, you will pay it off in monthly payments
over the next three years at a 6 percent Annual Percentage Rate (the monthly rate is 6%/12). You believe
you will be able to sell the car for $23,000 in three years.
a) What is the cost of buying the car?
b) What is the cost of leasing the car? (
c) Should you buy or lease the car?
d) What break-even resale price in three years would make you indifferent between buying and
leasing?
3
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