Car prices tend to increase over time. One car manufacturer has offered students the opportunity to lock in the price of a new car for when they graduate. By paying $500 today, a student can purchase any car made by the manufacturer at today’s price at any time over the next three years. The $500 fee is not refundable once it is paid.

Required:
Do you think it is worthwhile to spend $500 to lock in the price of a car for three years? Explain. What are the risks associated with purchasing this price guarantee?
Suppose you could sell the price guarantee to somebody else. What do you think would happen to the amount for which you could sell the price guarantee if the price of cars increased? What would happen to the amount you could receive if the price of cars decreased? Explain.