Estimates, Compound Interest, Payment Options
by Alphie Vills
(Port Moresby, Papua New Guinea)
Please,I need help on this problem.
A friend is planning on buying a major appliance.A store which has the item being purchased is offering 'No deposit,No interst,No repayments for 24 months for purchases over $1000 or a 10% discount for cash.
He asks you if he should pay for the appliance immediately to obtain the 10% discount or to accept delayed payment option at a higher price.
Estimates and Assumptions
Make the following estimates however,you may choose any that seem realistic.
1) Purchase price of major appliance, $C (must be at least $1000).
2) Interest rate earned by a Savings account, S% pa compounded monthly.
3) Credit card interest rate, I% pa compounded daily.
Assume any fees and charges involed with the delayed payment offer are minimal.
A) Calculate the discounted cash price.
B) Calculate the effective discount rate being used.
Assume the delayed payment option is chosen.
C) If the cash price is avaiable assume it is invested in a savings account earning interest at S% pa
compounded mounthly (estimate 2).
D) How much interest has been earned?
E) How much needs to be invested in savings account,so the full price of the appliance is avaliable in