A local dealer is advertising a 24 month lease of a sport utility vehicle for $5

Question

A local dealer is advertising a 24 month lease of a sport utility vehicle for $520 payable at the beginning of each month. The lease requires a $2,500 down payment plus a $500 refundable security deposit. As an alternative, the company offers a 24 month lease with a single upfront payment of $12,780 dollars plus a $500 refundable security deposit. The security deposit will be refunded at the end of the 24 month lease. assuming you have access to a deposit account that pays an interest rate of 6% compounded monthly, which lease is more favorable?
Please show work thanks!

Explanation / Answer

PV= 520+ 520PVIFA(.5%,23)+2500+500= $14791.35 PV= 12780+500=$13280 The second option is favorable.

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