You can purchase a residential building lot for $90,000 cash or for $20,000 down and quarterly payments of $5,000 for four years. The first payment would be due three months after the purchase date. If the money you would use for a cash purchase can earn 8% compounded quarterly during the next four years, which option should you choose? What is the economic advantage in current dollars of the preferred alternative?

Compounded Quarterly

Interest calculated and added to the principal every quarter (three months), which then accrues additional interest in subsequent quarters.

Economic Advantage

The benefit gained by making a decision that results in the optimal utilization of resources, leading to a better outcome compared to other alternative decisions.

Residential Building Lot

A parcel of land designated for the construction of a single-family home or multiple residential units.