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Economics
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Jan is trying to decide between two cars that will be leased. The interest rate on leases for both cars is 6.25% NAR with monthly compounding for a four year lease. The trade-in from her present car is $5,000 for both car options, that would be deducted from the price. Car A is more expensive at $40,000 and has an estimated value of $15,000 when returned to the dealer at the end of the lease. Car B has a negotiated price of $30,000 and has an estimated value of only $5,000 when returned to the dealer at the end of the lease. If the down payment is deducted from the price, which offer would have the lowest payments?

Mar 30th, 2015

Resale value of car: $5000

 Option 1 ( car A)

Price = $40000

Resale car trade in, hence amount to be paid: $40000 - $5000 = $35000

Now, $35000 at 6.25% per month, compounded monthly.

Amount = $45,567

Estimated value on return= $15000

Money spent = $45,567 - $15000 = $30,567

Option 2 ( car B)

Price = $30000

Resale car trade in, hence amount to be paid: $30000 - $5000 = $25000

Now, $25000 at 6.25% per month compounded monthly.

Amount= $32735

Money spent = $32735 - $5000 = $27735

Clearly Option 2, i.e. buying of car B makes a better deal.


Mar 30th, 2015

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