1. You are buying a new vehicle and trying to determine what payment option you want. The salesperson has offered three options: (1) a cash price of $23,000 paid today, (2) a five year lease with $3600 per year starting at the signing of the lease of the vehicle and a buyout price of $9500 at the fifth year, (3) er a six year finance with $4500 per year starting at the signing of the finance of the vehicle. Assume that the interest rate for the first three years is 3% and the years after is 5%. a. Draw the number line and accurately show the lease/buyout option. b. and calculate the present value of the lease option. c. Draw the number line and accurately show the finance option.
1. You are buying a new vehicle and trying to determine what payment option you want. The salesperson has offered three options: (1) a cash price of $23,000 paid today, (2) a five year lease with $3600 per year starting at the signing of the lease of the vehicle and a buyout price of $9500 at the fifth year, (3) er a six year finance with $4500 per year starting at the signing of the finance of the vehicle. Assume that the interest rate for the first three years is 3% and the years after is 5%. a. Draw the number line and accurately show the lease/buyout option. b. and calculate the present value of the lease option. c. Draw the number line and accurately show the finance option.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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1. You are buying a new vehicle and trying to determine what payment option you want. The salesperson has offered three options: (1) a cash price of $23,000 paid today, (2) a five year lease with $3600 per year starting at the signing of the lease of the vehicle and a buyout price of $9500 at the fifth year, (3) er a six year finance with $4500 per year starting at the signing of the finance of the vehicle. Assume that the interest rate for the first three years is 3% and the years after is 5%.
a. Draw the number line and accurately show the lease/buyout option. b. and calculate the present value of the lease option.
c. Draw the number line and accurately show the finance option. d. and calculate the present value of the finance option.
e. Which payment option would you choose? Why?
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