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
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
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
Problem 1PS
Related questions
Question
![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](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F6ef68eb4-0d24-4c11-b1fe-5f183f3319aa%2F4400e115-99d8-48b3-ac60-ce1c817a77f3%2F8vw7e6e_processed.png&w=3840&q=75)
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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