Andrew is buying a television set priced at $1850 and has three payment options:
Option 1: Pay cash and receive a discount of 8.5%
Option 2: Pay a deposit of $500 followed by 12 monthly payments of $122
Option 3: Purchase it on finance at a compound interest of 9.25% per annum payable over 2 years
(a) Calculate the amount, in the nearest cent, Andrew will pay for each of the three options.
(b) If Andrew pays a deposit of $500 and borrows the remainder at 9.25% per annum for 1 year, will he pay less than if he chooses option 2? Explain.
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Answer:
(a)
Option 1: Andrew will pay $1850 - $1850*8.5% = $1692.75
Option 2: Andrew will pay $500 + 12 * $122 = $1964
Option 3: Andrew will pay $1850 * 109.25% * 109.25% = $2208.08
(b) $1850 - $500 = $1350
Total paid if Andrew pays a deposit of $500 and borrows the remainder at 9.25% per annum for 1 year
= $500 + $1350 * 109.25% = $1974.88
Andrew would pay $10.88 less if he chooses Option 2.
