Question

Sara is looking to purchase a washer and dryer. The Saturday newspaper had an advertisement for a local appliance store offering "90 days, same as cash!" financing. Sara asked how the financing worked and learned that she could pay for the washer and dryer any time during the first 90 days for the purchase price plus sales tax. If she waited longer, she would have to pay the purchase price, plus sales tax plus 25.8% annual simple interest for the first 90 days, plus 4% simple interest per month (or any part of a month) on the unpaid balance after 90 days. Together, the washer and dryer cost $699 plus the 8.25% sales tax. Sara knew that her tax refund from the IRS would be $1,100, so she bought the washer and dryer confident that she could pay off the balance within the 90 days. Answer parts 1. through 4. O Money lenders typically use ordinary interest (360 days per year vs 365 days per year for loans to require slightly lower interest D. Money lenders typically use exact interest (365 days per year vs 360 days per year) for loans to require slightly lower interest 3. If Sara's IRS refund does not come until April 1, what is her payoff amount? (Assume ordinary interest and a non-leap year) S if paid on April 1 (Round to the nearest cent as needed.)

Answer 1

Cost of dryer & washer = $699

Sales tax = 8.25%

Interest for first 90 days = 25.8% annual i.e. 6.36% for 90 days

Monthly interest after 90 days = 4%

Total amount to be paid = Cost of dryer & washer + taxes

= $699 + 8.25% of $699

= $756.67

The amount is repaid on April 1 i.e. on 91st day. Therefore, Sara will have to pay Interest for one month in addition to the interest for 90 days .

Total Interest to be paid = 90 days interest + one month interest

= 6.36% + 4%

= 10.36%

Total payable amount on April 1 = Cost of dryer & washer + Interest for 91 days

= $756.67 + 10.36% of $756.67

= $756.67 + $78.39

= $835.06