Find the added expense and the actual yearly rate of interest for the following. A food processor for $119.50 cash, or $5.00 down and $9.00 per month for 15 months.
To find the added expense and the actual yearly rate of interest for the given scenario, we need to compare the total amount paid in both cases and calculate the difference.
Option 1: Paying $119.50 in cash.
Option 2: Making a down payment of $5.00 and paying $9.00 per month for 15 months.
Let's break down the calculations step by step:
Option 1: Paying $119.50 in cash.
In this case, there are no additional monthly payments, so the total expense is simply $119.50.
Option 2: Making a down payment of $5.00 and paying $9.00 per month for 15 months.
The additional expense in this option is the monthly payment multiplied by the number of months:
Additional expense = $9.00 x 15 = $135.00
To calculate the actual yearly rate of interest, we need to find the difference between the two options and convert it into an annualized rate.
Difference in expense = $119.50 (Option 1) - ($5.00 + $9.00 x 15) (Option 2)
= $119.50 - ($5.00 + $135.00)
= $119.50 - $140.00
= -$20.50
Since the difference is negative, it means that Option 2 is cheaper than Option 1. Therefore, there is no actual yearly rate of interest to calculate.
In summary:
- The added expense for Option 2 is $135.00.
- There is no actual yearly rate of interest because Option 2 is cheaper than Option 1.