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Hi, can you please check if Answer 1 is correct and I am not sure where to start for question 2. Please

advise.


Buy or lease a new car?

Car price is $50,000, remaining value is $20,000 after you use it for three years.

Can also lease it for $650 per month for a three-year term, with the first payment due immediately. An annual percentage rate (APR) of 8%.


1.Looking for present value of the lease payments, assuming monthly compounding at the given APR of 8%.                                                     

Pmt = $650, N = 3, I = 8%

Pvpmt = $650 x (1-(1+0.08/12)-12x3))/(0.08/12) = $20,274.67


2.Calculate the present value of the $20,000 salvage value, again using monthly compounding and the given APR of 8%. Deduct the salvage value from the purchase price to determine the present value of the cost of buying the vehicle. 

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