A used car that currently costs $25,000 will have a market value of $8,000 in four years. As a student, you cannot afford to pay $25,000, but you want to have a car while you are going to university for the next four years. Your father agrees to lend you $25,000 on the condition that you pay him $300 at the end of every month for the next four years and $25,000 at the end of the four years. The car dealer provides financing facilities, and you are qualified to get a lease for which you will have to make monthly, end-of-month payments of $650 for 48 months. Which option will leave you better off, assuming your opportunity cost is 6 percent?
A used car that currently costs $25,000 will have a market value of $8,000 in four years. As a student, you cannot afford to pay $25,000, but you want to have a car while you are going to university for the next four years. Your father agrees to lend you $25,000 on the condition that you pay him $300 at the end of every month for the next four years and $25,000 at the end of the four years. The car dealer provides financing facilities, and you are qualified to get a lease for which you will have to make monthly, end-of-month payments of $650 for 48 months. Which option will leave you better off, assuming your opportunity cost is 6 percent?
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:A used car that currently costs $25,000 will have a market value of $8,000 in four years. As a student, you cannot afford to pay
$25,000, but you want to have a car while you are going to university for the next four years. Your father agrees to lend you
$25,000 on the condition that you pay him $300 at the end of every month for the next four years and $25,000 at the end of the
four years. The car dealer provides financing facilities, and you are qualified to get a lease for which you will have to make
monthly, end-of-month payments of $650 for 48 months. Which option will leave you better off, assuming your opportunity cost is
6 percent?
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