# Finance

You are interested in a new Ford Taurus. After visiting your Ford dealer, doing your research on the best leases available, you have three options. (i) Purchase the car for cash and receive a \$1,900 cash rebate from Dealer A. The price of the car is \$19,000. (ii) Lease the car from Dealer B. Under this option, you pay the dealer \$550 now and \$225 a month for each of the next 36 months (the first \$225 payment occurs 1 month from today). After 36 months you may buy the car for \$10,900. (iii) Purchase the car from Dealer C who will lend you the entire purchase price of the car for a zero interest 36-month loan with monthly payments. The car price is \$19,000. Suppose the market interest rate is 4%.

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1. So, what is the question?

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2. What is the net cost today of the cheapest option?

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3. Okay: Dealer A's net cost is \$19,000 minus the \$1,900 rebate. Dealer B offers \$225 times 36 months plus the \$550 down payment, plus the \$10,900 purchase price at the end of the lease.
Dealer C offers zero interest so the net cost is \$19,000. You do the math.

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4. To which option does the 4% interest rate go....all or the last two?

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5. No, it does not apply to any of them.
Paying cash involves no loan or interest rate. There is no loan involved in a lease. The third dealer offers zero interest.

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6. Ok thanks for your help

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