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A customer has two payment options at a local furniture store when purchasing $6000 worth of new appliances.

Option one is a down payment of 15%, but no payments or interest if the entire amount is paid off within 12 months. If the balance is not paid within 12 months, simple interest at a rate of 15% per annum is charged from the date of purchase.

The second option is a 5% down payment and monthly payments of $275 for two years.

a) How much would the customer pay if they chose option one and made one payment for the entire balance after 13 months?

b) How much would the customer have paid if they had chosen option two?

 Aug 9, 2022
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Option one:

 

6000  x  0.15 ==$900 - this is the down payment.

6000 - 900 ==$5,100 - this is the balance left

 

5,100 x  0.15 ==$765 - this is simple interest on 5,100 for 12 months or 1 full year.

765/12 x 13 ==$828.75 - this is simple interest on 5,100 for 13 months.

 

$900 (down payment) + $5,100 (principal balance owing) + $828.75 (interest for 13 months)==$6,828.75 - total cost of option one.

 

 

Option two:

 

6,000 x  0.05 ==$300 - this is the down payment

275  x  24 months - or 2 years ==$6,600 - total of 24 monthly payments.

 

$300 (down payment)  +  $6,600 (total of 24 payments) ==$6,900 - total cost of Option two.

 

$6,900  -  $6,828.75 ==$71.25 - difference between the 2 Options.

 Aug 11, 2022

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