You can buy a car for $25,000 and sell it in 5 years for $5,000. Or you

Question:

You can buy a car for $25,000 and sell it in 5 years for $5,000. Or you can lease the car for 5 years for $5,000 a year. The discount rate is 12 percent per year.

a. Which option do you prefer?

b. What is the maximum amount you should be willing to pay to lease rather than buy the car?

Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...