Answered: (a) Develop a choice table for nominal…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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The Financial Advisor is a weekly column in the local newspaper. Assume you must answer the following 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 loan 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 payments 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?

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