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Question: You are considering whether to buy or lease a car. If you lease, you have to pay a refundable security deposit of $5 hundred, and a monthly lease payment of $437 for 4 years, with payments due at the beginning of the month. If you buy, you will pay a downpayment of $27 hundred, and a monthly loan payment of $511, over the same period of time, with payments due at the end of the month. The car is estimated to have a residual value of $7 thousand at the end of this time. If the appropriate discount rate is 5 percent, what is the relative benefit of buying as opposed to leasing? Hint: find the present value of all the buy cash flows, and subtract the present value of all the lease cash flows. Pay attention to the signs!

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