You intend to buy a new laptop computer. Its price at electronic shops is $2,000, but your next-door neighbour offered to lease you the same computer for monthly payments of $75 for a 24-month period, with the first payment made today. The interest rate in the market is 10% per year.

1. Assuming you can sell the computer after 2 years at $500 (residual value) if you purchase it, should you buy or lease?

2. What is the residual value for which you are indifferent between buying and leasing?

**Please provide workings.