13
QuizMultiple Choice

Using Graphs to Advertise — Cumulative exam

Question 13 • FowU - Financial Math - B

Tom is in dire need of a new washing machine. He knows what model he would like to get, but doesn't have the cash to pay for it. He plans to get a line of credit (credit card) at the store when he purchases his new washer. He found four different stores that carry the same washing machine for different prices. The lines of credit they offer also come with different APRs. Tom's primary goal is to minimize his monthly payment as he pays the washing machine off over the next 18 months. From which of the four stores should Tom purchase his washing machine? StorePrice ($)Credit Card APRBob's Nuts and Bolts$450.0021%Steve's Scratch and Dent$405.0022%Wally's Washing Machines$432.0019%Al's Appliances$475.0016%

Answer
A
Bob's Nuts and Bolts
B
Steve's Scratch and Dent
C
Wally's Washing Machines
D
Al's Appliances

Explanation

Compare the monthly payments using the 18-month loan payment formula, with the APR divided by 12 for the monthly interest rate. Steve’s Scratch and Dent charges $405 at 22% APR, giving a payment of about $26.60 per month; the other stores’ payments are higher (about $29.40, $27.80, and $29.90, respectively). So Steve’s lower washer price outweighs its higher APR, and it gives Tom the smallest monthly payment.

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