Felicia paid $2,879 for a new wall oven with her credit card. Felicia’s credit card has an APR of 13.89%, compounded monthly. It took Felicia seven years of identical monthly payments to pay for her oven, and she made no other purchases with her card until it was paid off. Over the ten years that she kept the oven, it used an average of $2.97 per week in electricity. Between the electricity and the interest, which component of the lifetime cost of the oven was greater, and how much greater was it? (Round all dollar values to the nearest cent.)
Answer
A
The interest cost $94.12 more than the electricity.
B
The interest cost $1,638.52 more than the electricity.
C
The electricity cost $1,334.60 more than the interest.
D
The electricity cost $463.32 more than the interest.
Explanation
The monthly interest rate is 13.89% ÷ 12 = 0.011575, and 7 years is 84 monthly payments. The monthly payment is about $53.78, so the total paid is $53.78 × 84 = $4,517.52, making the interest $4,517.52 − $2,879 = $1,638.52. Electricity costs $2.97 × 52 × 10 = $1,544.40, so the interest cost $94.12 more. The correct choice is “The interest cost $94.12 more than the electricity.”
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