Question

Suppose you can buy a new car for $15,000 and sell it for $6,00 after six years. Or, you can lease the car to $300 per month for three years and return it at the end of the three years. Assume that lease payments are made yearly instead of monthly (i.e., are $3,600 per year for each of the three years).

a.) If the interest rate, r, is 4 percent, should you lease or buy?

b.) What if the interest rate is 12 percent?

c.) At what interest rate would you be indifferent between buying and leasing the car?

Answer #1

After deciding to buy a new car, you can either lease the car or
purchase it with a three-year loan. The car costs $30,000. The
dealer has a lease program where you pay $100 today and $400 per
month for the next three years. If you purchase the car, you will
pay it off in monthly payments over the next three years at a 8
percent APR. You believe that you will be able to sell the car for
$20000...

After deciding to buy a new car, you can either lease the car or
purchase it on a two-year loan. The car you wish to buy costs
$32,000. The dealer has a special leasing arrangement where you pay
$93 today and $493 per month for the next two years. If you
purchase the car, you will pay it off in monthly payments over the
next two years at an APR of 7 percent. You believe you will be able
to...

After deciding to buy a new car, you can either lease the car or
purchase it on a three-year loan. The car you wish to buy costs
$32,500. The dealer has a special leasing arrangement where you pay
$94 today and $494 per month for the next three years. If you
purchase the car, you will pay it off in monthly payments over the
next three years at an APR of 6 percent. You believe you will be
able to...

After deciding to get a new car, you can either lease the car or
purchase it with a four-year loan. The car you wish to buy costs
$35,500. The dealer has a special leasing arrangement where you pay
$100 today and $500 per month for the next four years. If you
purchase the car, you will pay it off in monthly payments over the
next four years at an APR of 7 percent, compounded monthly. You
believe that you will...

After deciding to get a new car, you can either lease the car or
purchase it with a two-year loan. The car you wish to buy costs
$34,500. The dealer has a special leasing arrangement where you pay
$98 today and $498 per month for the next two years. If you
purchase the car, you will pay it off in monthly payments over the
next two years at an APR of 5 percent, compounded monthly. You
believe that you will...

After deciding to get a new car, you can either lease the car or
purchase it with a four-year loan. The car you wish to buy costs
$37,000. The dealer has a special leasing arrangement where you pay
$103 today and $503 per month for the next four years. If you
purchase the car, you will pay it off in monthly payments over the
next four years at an APR of 7 percent, compounded monthly. You
believe that you will...

After deciding to acquire a new car, you can either lease the
car or purchase it with a two-year loan. The car you want costs
$32,000. The dealer has a leasing arrangement where you pay $93
today and $493 per month for the next two years. If you purchase
the car, you will pay it off in monthly payments over the next two
years at an APR of 7 percent. You believe that you will be able to
sell the...

You need a new car. You can either lease or buy the car for 355
000 SEK. In both cases you expect to use the car for 5 years. It
will have a residual value of 120 000 SEK after 5 years. You can
borrow at a rate of 2.5% APR with monthly compounding.
(a) In case you buy the car you will take an annuity loan over 5
year at a borrowing rate of ${col}%. What will be your...

1. You need a new car. You can either purchase one outright for
$15,000 or lease one for 7 years for $3,000 a year. If you buy the
car, you can sell it in 7 years for $500. The discount rate is 10%.
Should you buy or lease? What is the maximum lease payment you
would be willing to pay?

You want to buy a new car. You can afford payments of $300 per
month and can borrow the money at an annual interest rate of 5.5%
compounded monthly for 5 years. How much are you able to borrow? $
How much interest do you pay? $

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