Question

Oliver is buying a new dishwasher. The dishwasher’s price is $285.10 after tax. He has a few payment options. He can put it on his debit card, which would take the money from his savings account. His savings account earns interest at a rate of 1.8% annually. He could also put it on one of two different credit cards. Card A has an annual interest rate of 9%, charged monthly, and charges a flat 1.2% fee on the initial value of the purchase (note: the fee accrues interest too). Card B has an annual interest rate of 12%, charged monthly, but no fee for purchases. Oliver thinks it will take five months for him to earn the additional money to offset the purchase. In all cases, the interest accrues according to this equation: A = P(1 + r)n, where A is the final dollar amount, P is the principal (initial amount borrowed), r is the interest rate for each interest period, and n is the number of interest periods. Part A If Oliver withdraws $285.10 from his savings account to make the purchase, how much would he have earned in interest on that amount over five months? Round your answer to the nearest cent. Part B How much would it cost him in interest over 5 months if he used card A to make the purchase? Part C How much would it cost Oliver in interest over 5 months if he used card B to make the purchase? Part D Which form of payment will cost Oliver the most over five months and which one will cost him the least? Part E From your answer in part d, which form of payment should Oliver use? Part F Is there a case where he could use one of his credit cards instead of the debit card and still be better off? If so, which card is best? Explain.

Answer 1

Answer:

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