A local car dealer is advertising a 24 month lease of a sport utility vehicle fo

Question

A local car dealer is advertising a 24 month lease of a sport utility vehicle for 520 payable at the beginning of each month. the lease requires a 2500 down payment plus a 500 refundable security deposit that is refunded at the end of the 24 month lease. as an alternative the company offers to finance the purchase with 24 end of the month payments of 905 along with requiring a 2500 down payment. if you finance the car you plan to sell the vehicle at the end of the 24 month period for 10,000. Assuming you have access to a deposit account that pays 6% APR compounded monthly which options is more favorable?

Explanation / Answer

money at the end to 1st dealer=520(1+.06)^24*24=50530 money at the end to 2nd dealer=905(1+.06)^24=87941 so 1st one is better has we have to pay less

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