Your cost of capital is 0.75% per month. If a car dealer offers you either a 4-year car lease with payments of $400/month (48 payments in total at the end of each month) or a 3-year car lease with an upfront payment of $2000 and subsequent payment of $350/month (36 payments at the end of each month), and if you do consider a 3-year car to be the same as a 4-year old car, then which one should you take?
(Assume that your need for a car continues after the expiry of each contract. Thus, you will consider again to choose between two options)
(Hint) Comparison of the ‘effective' monthly payment of the two. The first one has a monthly payment of 400. What is the effective monthly payment of the second?