Question 5 You have decided to purchase a new car and are trying to evaluate whether you should lease the car or purchase it. If you buy the car, you can finance the purchase with a 5.00% bank loan. The cash cost of the car is $40,000. This price represents your purchase cost if you decide to buy rather than lease the car. If you do purchase the car, you plan to sell it after 24 months. Based on your own research, you expect the car to be worth $16,000 after 24 months. The dealer has offered you the following lease terms: You pay $4,000 at the signing of the lease. Starting one month from today, you pay $800 per month for the next 24 months. You guarantee that the car will have a residual value of $20,000 at the end of the lease. This guarantee means that if the value of the car at the end of the lease term is less than the guaranteed residual value, you will pay the difference to the dealer (on top of the final monthly payment). a) What is the effective annual interest rate of the lease? EAIR (%) 0.00% Sorry, try again b) Should you lease the car or purchase it using a bank loan? Lease or Purchase? (no answer check provided) 0 1 Question 5 You have decided to purchase a new car and are trying to evaluate whether you should lease the car or purchase it. If you buy the car, you can finance the purchase with a 5.00% bank loan. The cash cost of the car is $40,000. This price represents your purchase cost if you decide to buy rather than lease the car. If you do purchase the car, you plan to sell it after 24 months. Based on your own research, you expect the car to be worth $16,000 after 24 months. The dealer has offered you the following lease terms: You pay $4,000 at the signing of the lease. Starting one month from today, you pay $800 per month for the next 24 months. You guarantee that the car will have a residual value of $20,000 at the end of the lease. This guarantee means that if the value of the car at the end of the lease term is less than the guaranteed residual value, you will pay the difference to the dealer (on top of the final monthly payment). a) What is the effective annual interest rate of the lease? EAIR (%) 0.00% Sorry, try again b) Should you lease the car or purchase it using a bank loan? Lease or Purchase? (no answer check provided) 0 1