Question
After deciding to have a new car, you can either lease the car or purchase it with a three-year loan. The car you wish to
After deciding to have a new car, you can either lease the car or purchase it with a three-year loan. The car you wish to buy costs $38,000. The dealer has a special leasing arrangement where you pay $1 today and $520 per month (starting one month from now) for the next three years at an 8 percent APR compounded monthly. If you purchase the car, you will pay it off in monthly payments over the next three years at an 8 percent APR compounded monthly. You believe that you will be able to sell the car for $26,000 in three years. (1) Should you buy or lease the car? (2) What break-even resale price in three years would make you the same between buying and leasing?
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