Real options: Consider a lease agreement recently offered by a car dealership. The agreement gives the customer the right to use a new SUV for three years in exchange for payments of $550 per month. At the end of the lease, the customer can choose to purchase the SUV for $15,000. What sort or option does this resemble?

Question

Quizplus · Accepted Answer

This resembles a call option on the SUV with a strike price of $15,000 as the customer has the right but not the obligation to buy the SUV at the end of the lease for $15,000.

Real Options: Consider a Lease Agreement Recently Offered by a Car