Emily wishes to obtain a new car with a total price of $18 752.
Option 1: Purchase the car now with a down payment of $4000 and a loan at 2% per annum compounded monthly and paid monthly for 3 years.
Option 2: Lease the car with no down payment and pay $325 per month for 3 years and then purchase the car outright at its lease-end value of $8000.
(a) What is the monthly payment for Option 1?
(b) What is the total paid in Option 2?
(c) Which option will cost Emily the least amount and by how much?
Solution
A= P(1+i)^t
--p= principal. amount to begin with.
--A= amount paid at the end.
--t= time in years
Option 1 a) =18 752(1+.02)^3
=18 752(1.02)^3
=$56821.15*$4000.00
=$19899.77+$4000.00
=$23899.77
option one montly pay=$19899.77/36
=$552.77
Option 2 b) 325*36=$11700.00+8000 12*3=36
=$19700.00
=$4199.77