I need a new car that I will keep for 5 years. I have

three options. I can

(A) pay $15,999 now,

(B) make monthly payments for a 9% 5-year loan with 0%

down, or

(C) make lease payments of $269.00 per month for the next five years. The lease option also requires an up-front payment of $500. What should I do?

Assume that the number of miles driven matches the assumptions for the lease, and the vehicles

value after 5 years is $4,500. Remember that lease payments are made at the beginning of the month,

and the salvage value is received only if you own the vehicle.

a) Develop a choice table for nominal interest rates from 0% to 50%. (You do not know what the

readers interest rate is.)

b) If i = 9.0%, use an incremental rate of return analysis to recommend which option should be

chosen