>> Finance Basics
Problem 1: After deciding to buy a new mercedes benz c class sedan, you can either lease the car or purchase it on a three year loan. The car you wish to buy costs $35,000. The dealer has a special leasing arrangement where you pay $99 today and $499 per month for the next three years. IF you purchase the car, you will pay it off in monthly payments over the next three years at a 6 percent APR compounded monthly. You believe you will be able to sell the car for $23,000 in three years. Should you buy or lease the car? What break-even resale price in three years would make you indifferent between buying and leasing?
Problem 2: You have 40 years left until retirement and want to retire with 5 million. Your salary is paid annually, and you will receive $50,000 at the end of the current year. Your salary will increase at 3 percent per year, and you can earn a 10 percent return on the money you invest. If you save a constant percentage of salarym what percentage of your salary must you save each year?