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You are planning on purchasing a $70,000 yacht; yo...




You are planning on purchasing a $70,000 yacht; you would like to own the yacht outright. The yacht dealership offers two different financing options, which alternatives is the best in terms of Present Value? (ignoring other fees not presented) The discount rate is 8.25 % (annual, compounded monthly). Option 1: a two-year lease involving $1000 monthly payments. The first payments is due at signing, and then monthly payments continue afterwards for two years. After the lease terminates, you can buy the yacht for $53,000. Option 2: receive a special loan interest rate of 6% (annual, compounded monthly) for 48 months, nothing is due at signing, and first payment begins one month after signing. Calculate PV for each option, showing formula.


Paper#13602 | Written in 18-Jul-2015

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