For both options your interest rate is 6 compunded, Ask an Expert

Economics

Assume that you are considering either buying or leasing a new car from a dealership, and the following date have been compiled:

Option A: Buying (Financing) the vehicle, for a price of $22,000. In this option, you have to pay $2,000 as a down payment, and $608 per month for 36 months to be paid at the END of each month thereafter. No Fees are applicable. The value of the vehicle after 3 years is S.

Option B: Leasing the vehicle for the price of $22,000. In this option, NO downpayment is required and the montlhy payment is $420 per month for 36 months, to be paid at the BEGINNING of each month. In this option, however, you are required to pay one time non-refunedable Documentation Fee of $400. At the end of the lease term, you have the option to pay S to own the vehicle.

For both options, your interest rate is 6% compunded monthly. If the car has a value of S after the 36 months period, what is the value of S that would make both options A and B economically equivalent?

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Business Economics, Economics

Category:- Business Economics
Reference No.:- M9442248

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