Tim needs a new car while he attends college in the united states for the next three years. the car he would like has an msrp of $15,000. a local dealer can get him a three-year loan with a 7% interest rate if tim can make a $1,500 down payment.

the same dealer offers the same car for lease with a money factor of 0.00271 and a residual value of 75%. the lease requires an additional fee of $1,250 to cover tim's security deposit and the acquisition and documentation fees for the car.

tim is looking to drive the car home with the smallest monthly payment. which of the following statements is true?

a. the monthly payment for the loan is lower.
b. the monthly payment for the lease is lower.
c. the monthly payments for the lease and loan are the same.
d. you cannot compare the monthly payments for leases and loans.

A is the correct answer

Step-by-step explanation:

loan:  cost of car =15000

down payment = 1500

reminder= 13500

total interest incurred is 7% = total amount incurred = (7% * 13500)+13500 =14445

period = 36 months so monthly expected payment = 14445/36= 1320 per month

lease:

money factor = expected monthly payment/ (( total cost of lease + residual value)* period.)

money factor = 0.00271

residual value = 75% * 15000= 11250

period = 36 months

total cost of lease = 15000+ 1250 (cover fee)= 16250

substituting all into the equation and making monthly payment subject of formular.. answer is 2682.9 per month

you can deduce that taking a loan has a cheaper monthly expected payment than a lease

A is the correct answer

Step-by-step explanation:

loan:  cost of car =15000

down payment = 1500

reminder= 13500

total interest incurred is 7% = total amount incurred = (7% * 13500)+13500 =14445

period = 36 months so monthly expected payment = 14445/36= 1320 per month

lease:

money factor = expected monthly payment/ (( total cost of lease + residual value)* period.)

money factor = 0.00271

residual value = 75% * 15000= 11250

period = 36 months

total cost of lease = 15000+ 1250 (cover fee)= 16250

substituting all into the equation and making monthly payment subject of formular.. answer is 2682.9 per month

you can deduce that taking a loan has a cheaper monthly expected payment than a lease

square root of 36/6 = 2.449489743

square root of 16/6 = 1.632993162

square root of 6 = 2.449489743

the answer is square root of 16/6 because the square root of 36/6 is the same answer as square root of 6 = 2.449489743