• Now that Andy has his permanent job lined up, he is thinking about replacing his car he bought during undergrad with a nice new BMW 4-series convertible. He estimates that he will get $7,500 for his trade-in which he will use as the down payment on his new vehicle. With taxes, license, and all of his desired upgrades, he estimates the total cost of his new vehicle will run $68,000.

If he purchases the car, the dealer has offered 2.75% financing for 72 months. If he borrowed the portion not covered by his trade-in, what is your estimate of his monthly payment?

One alternative is to increase his down payment by using some of his signing bonus. If in addition to the trade-in, he also applied $20,000 in cash towards the down payment and financed the rest, what is your revised estimate of his monthly payment?The other alternative is for him to instead lease the car. His trade-in would again serve as the down payment and they have offered him monthly payments of $599 per month for three years. At the end of the three years, he could then purchase the vehicle for $43,000. Under these terms, is he better off purchasing the vehicle or leasing it? Assume that he will still be able to borrow at 2.75% when the lease ends.