Question

Michael is considering getting a closed-end lease on a car for 48 months. The car dealer quotes him a monthly payment of $349. If Michael were to buy the car with the same down payment, his monthly payment would be $465 a month. Michael's lease payment is lower because:________.

a) he is not paying for the residual value of the car at the end of four years.b) he is paying finance charges only on the amount of the car that will be depreciated over four years.c) car dealers make a lower profit on leased cars.d) leased cars do not come with a manufacturer's warranty.

Answer 1

The correct answer is A) he is not paying for the residual value of the car at the end of four years. When leasing a car, the monthly payment is lower because you are not responsible for the residual value of the car at the end of the lease term.

Step-by-step explanation:

The correct answer is A) he is not paying for the residual value of the car at the end of four years.

When leasing a car, the monthly payment is lower because you are not responsible for the residual value of the car at the end of the lease term. The residual value is the estimated value of the car after the lease term is over. With a closed-end lease, you can simply return the car to the dealer at the end of the lease without any further financial obligation.

On the other hand, if Michael were to buy the car with the same down payment, he would have to make larger monthly payments because he would be paying for the full value of the car, including the residual value, which is built into the finance charges.

Answer 2

The answer is he is paying finance charges only on the amount of the car that will be depreciated over four years.

Step-by-step explanation:

According to Investopedia dot com, the term closed-end lease refers to a rental agreement that doesn't put obligation on the lessee, the person making the payments periodically, to purchase the leased assed at the end of the agreement. Other terms are true lease, walkaway lease, or net lease. Due to this, the correct answer is letter B.