Question

Sarah bought a lawnmower for $320. She signed up for the buy now pay later plan at the store with the following conditions: $100 down and payments of $25 for the next 12 months. The extra cost paid by taking this plan is equivalent to what actual yearly rate of interest? A. 67% B. 65% C. 25% D. 85%

Answer 1

The extra cost paid by taking the buy now pay later plan is equivalent to a yearly interest rate of 25%.

Step-by-step explanation:

To calculate the extra cost paid by taking the buy now pay later plan, we first need to calculate the total payments made under the plan. Sarah paid $100 down payment and $25 per month for 12 months. So the total payments made would be $100 + ($25 x 12) = $400.

Now, we subtract the original cost of the lawnmower ($320) from the total payments made under the plan ($400) to calculate the extra cost paid. $400 - $320 = $80.

Next, we need to calculate the actual yearly rate of interest equivalent to this extra cost. To do this, we divide the extra cost ($80) by the original cost of the lawnmower ($320) and multiply by 100 to convert it into a percentage. ($80 / $320) x 100 = 25%.

Therefore, the actual yearly rate of interest equivalent to the extra cost paid is 25% (option C).

Answer 2

Cost of the lawnmower bought by Sarah = $320
Amount of down payment made by Sarah = $100
Amount paid by Sarah in 12 months = (12 * 25) dollars
= 300 dollars
Total amount paid by Sarah = (300 + 100) dollars
= 400 dollars
Excess amount paid as interest by Sarah = (400 - 320) dollars
= 80 dollars
Actual yearly rate of interest paid by Sarah = (80/320) * 100 percent
= 25 percent
So 25% yearly interest was paid by Sarah. The correct option is option "C".