After deciding to buy a new car, you can either lease the car or purchase it on
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Question:
After deciding to buy a new car, you can either lease the car or purchase it on a three-year loan. The car you wish to buy costs $44,000. The dealer has a special leasing arrangement where you pay $1,000 per month, at the beginning of each month, for the next three years. If you purchase the car, you will pay it off in monthly payments over the next three years at a 3.6% APR. You believe you will be able to sell the car for $25,000 in three years. Assume that all payments occur at the end of each month.
(a) (4 points) Should you buy or lease the car? Provide all the equations.
(b) (3 points) What break-even resale price in three years would make you indifferent between buying and leasing?
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