Question

# A local car dealership is advertising a 24-month lease of a Lexus for \$520 payable at...

A local car dealership is advertising a 24-month lease of a Lexus for \$520 payable at the beginning of each month. The lease requires a \$2500 down payment plus a \$500 refundable security deposit. As an alternative, the dealership offers a 24-month lease with a single up-front payment of \$12,780 plus a \$500 refundable security deposit. The security deposit will be refunded at the end of the 24-month lease. Assuming an interest rate of 6% compounded monthly, which lease is preferable? By hand and with excel

Since both the options require \$500 refundable security, we can neglect that.

Monthly interest rate = 6%/12 = 0.5% = 0.005

For 1st option, present value =

For 2nd option, present value = \$12,780

Since the present value of 1st option is greater than that of 2nd option, we should go with 1st option.

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