Question

Car prices tend to increase over time. One car manufacturer has offered students the opportunity to lock in the price of a new car for when they graduate. By paying $500 today, a student can purchase any car made by the manufacturer at today's price at any time over the next three years. The $500 fee isn't refundable.

Required:
Do you think it's worthwhile to spend $500 to lock in the price of a car for three years? Explain. What are the risks associated with purchasing this price guarantee? Suppose you could sell the price guarantee to somebody else. What would happen to the amount you could sell the price guarantee for if the price of cars increased? What if the price of cars decreased? Explain.



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  • CreatedFebruary 26, 2015
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