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Financial Maths, STD2 EQ-Bank 17

Mia wants to buy a tablet with a cash price of $960. She cannot pay for it upfront and is considering two options.
 

Option 1: Buy now, pay later

  • 4 equal payments of $240 over 8 weeks
  • No interest or fees if all payments are made on time

Option 2: Short-term loan

  • Establishment fee: $75
  • Monthly account-keeping fee: $30
  • Weekly repayments of $55 over 5 months (20 weeks)

Assume Mia will make all payments on time under either option.

  1. Calculate the total amount Mia will pay under each option.   (2 marks)

  2. Which option is cheaper, and by how much?   (1 mark)

Show Answers Only

a.    \(\text{Option 1: }\$960,\ \text{Option 2: }\$1325\)

b.    \(\text{Option 1 is cheaper by }\$365\)

Show Worked Solution

a.    \(\text{Option 1: } \)

\(\text{Repayments}=4 \times 240 = \$960\)
  

\(\text{Option 2:}\)

\(\text{Account-keeping} = 30 \times 5 = \$150\)

\(\text{Weekly repayments} = 55 \times 20 = \$1100\)

\(\text{Total} = 75+150+1100 = \$1325\)
  

b.    \(\text{Option 1 is cheaper.}\)

\(\text{Difference} = 1325-960 = \$365\)