8-40 The Financial Advisor is a weekly column in the local newspaper. Assume you must answer the fol- lowing question. "I need a new car that I will keep for 4 years. I have three options. I can (A) pay $32,999 now, (B) make monthly payments for a 7% 4-year loạn with 0% down, or (C) make lease payments of $425 per month for the next 4 years. The lease option also requires an up-front payment of $3500. What should I do?" Assume that the number of miles driven matches the assumptions for the lease, and the vehicle's value after 4 years is $14,500. Remember that lease pay- ments are made at the beginning of the month, and the salvage value is received only if you own the vehicle. (a) Develop a choice table for nominal interest rates from 0% to 50%. (You do not know what the reader's interest rate is.) (b) If i = 8%, which option should be chosen? -41 The Financial
8-40 The Financial Advisor is a weekly column in the local newspaper. Assume you must answer the fol- lowing question. "I need a new car that I will keep for 4 years. I have three options. I can (A) pay $32,999 now, (B) make monthly payments for a 7% 4-year loạn with 0% down, or (C) make lease payments of $425 per month for the next 4 years. The lease option also requires an up-front payment of $3500. What should I do?" Assume that the number of miles driven matches the assumptions for the lease, and the vehicle's value after 4 years is $14,500. Remember that lease pay- ments are made at the beginning of the month, and the salvage value is received only if you own the vehicle. (a) Develop a choice table for nominal interest rates from 0% to 50%. (You do not know what the reader's interest rate is.) (b) If i = 8%, which option should be chosen? -41 The Financial
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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Transcribed Image Text:lowing question. "I need a new car that I will keep for
4 years. I have three options. I can (A) pay $32,999
local newspaper. Assume you must answer the fol-
now, (B) make monthly payments for a 7% 4-year
(a) Develop a choice table for nominal interest rates
from 0% to 50%. (You do not know what the
Assume you
must answer the fol.
local
newspaper.
A
4 years. I have three options. I can (A) pay
now, (B) make monthly payments for a 7% 4-vear
loạn with 0% down, or (C) make lease payments
of $425 per month for the next 4 years. The lease
option also requires an up-front payment of $3500.
What should I do?"
$32,999
Assume that the number of miles driven matches
the assumptions for the lease, and the vehicle's value
after 4 years is $14,500. Remember that lease pay-
ments are made at the beginning of the month, and
the salvage value is received only if you own the
vehicle.
reader's interest rate is.)
(b) If i = 8%, which option should be chosen?
8-41 The Financial Aduin
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