A local car dealer is advertising a standard 24-month lease of $1,150 per month for its new XT 3000 series sports car. The standard lease requires a down payment of $4,500 plus a $1,000 refundable initial deposit now. The first lease payment is due at the end of month 1. Alternatively, the dealer offers a 24-month lease plan that has a single up-front payment of $30,500 plus a refundable initial deposit of $1,000. Under both options, the initial deposit will be refunded at the end of month 24. Assume an interest rate of 6% compounded monthly. With the present-worth criterion, which option is preferred?
A local car dealer is advertising a standard 24-month lease of $1,150 per month for its new XT 3000 series sports car. The standard lease requires a down payment of $4,500 plus a $1,000 refundable initial deposit now. The first lease payment is due at the end of month 1. Alternatively, the dealer offers a 24-month lease plan that has a single up-front payment of $30,500 plus a refundable initial deposit of $1,000. Under both options, the initial deposit will be refunded at the end of month 24. Assume an interest rate of 6% compounded monthly. With the present-worth criterion, which option is preferred?
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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A local car dealer is advertising a standard 24-month lease of $1,150 per month for its new XT 3000 series sports car. The standard lease requires a down payment of $4,500 plus a $1,000 refundable initial deposit now. The first lease payment is due at the end of month 1. Alternatively, the dealer offers a 24-month lease plan that has a single up-front payment of $30,500 plus a refundable initial deposit of $1,000. Under both options, the initial deposit will be refunded at the end of month 24. Assume an interest rate of 6% compounded monthly. With the present-worth criterion, which option is preferred?
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