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After deciding that you want to get a new car, you can either lease the car or purchase it with a three year loan. The
After deciding that you want to get a new car, you can either lease the car or purchase it with a three year loan. The car you wish to buy costs $31,000. The appropriate discount rate is 6 percent stated annually with monthly compounding. The dealer has a special leasing arrangement where you pay $1,500 today and $405 per month for the next three years. If you purchase the car you will pay off the loan in monthly payments over the next three years. Assume the first monthly payment will be 1 month from today. What are the monthly payments? If you purchase the car, you believe that you will be able to sell the car for $20,000 in three years. Should you buy or lease the car? What breakeven resale price in three years would make you indifferent between buying and leasing
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