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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