Paul is going to buy a collectible vintage painting from the local art gallery. The painting is priced at $600 in the gallery. The gallery owner does accept credit cards but pefers cash. In fact, he offers to give Paul a 5% discount if he can pay in cash. Paul doesn’t have any cash but can get a cash advance on his credit card. His credit card has and APR f 16% in credit purchases and a 32% APR on cash advances. Assuming Paul wants to pay the painting off over 12 months, which of the following is true?
Accepted Solution
A:
Given:Painting priced at $600. If paid using credit card and in installment basis.$600 x 16% = $96 interest on credit card balance$600 + $96 = $696 total debt$696 ÷ 12 months = $58 monthly payments If paid using cash from cash advance.$600 x 5% discount = $30$600 - $30 = $570$570 x 32% = $182.40 interest on cash advance$570 + $182.40 = $752.40$752.40 ÷ 12 months = $62.70 monthly payment It is cheaper for Paul to buy the painting using his credit card. He will only pay $58 per month on his credit card provider compared to the $62.70 monthly bill if he used cash advance.