Consider a lease agreement recently offered by a car dealership. The agreement gives the customer the right to use a new SUV for four years in exchange for payments of $650 per month. At the end of the lease, the customer can choose to purchase the SUV for $18,000. What sort of option does this resemble?

Question

Quizplus · Accepted Answer

This resembles a call option on the SUV with a strike price of $18,000 because at the end of the lease, the customer has the option to purchase the SUV for $18,000, which is the strike price. The customer can choose to exercise this option or not, depending on the market value of the SUV at the time.

Consider a Lease Agreement Recently Offered by a Car Dealership