Question

Jenny used her credit card to buy a refrigerator with a base cost of $824. The refrigerator consumed an average of $0.09 in electricity every day. Jenny made regular monthly payments for three and a half years, at which point the refrigerator was paid off. Over the eight years that Jenny had the refrigerator, it needed repairs three times, costing $68.75 each time. If Jenny’s credit card has an APR of 10.54%, compounded monthly, and sales tax in Jenny’s area is 7.13%, what was the lifetime cost of Jenny’s refrigerator? Assume that Jenny made no other purchases with her credit card, and round all dollar values to the nearest cent. (Remember that leap year occurs every four years.)
a.
$1,528.47
b.
$1,622.46
c.
$1,779.63
d.
$1,457.91

Answer 1

Answer: a. $1,528.47

Work (outline):
- Purchase with sales tax: 824(1 + 0.0713) = $882.74.
- Monthly interest rate = 0.1054/12 ≈ 0.0087833333. Number of months = 3.5·12 = 42.
- Monthly payment on a loan of $882.74 for 42 months:
PMT = P·[r(1+r)^n]/[(1+r)^n − 1] ≈ $25.23 (rounded to cents).
Total paid on the card = 42·PMT ≈ $1,059.84.
- Electricity for 8 years: days = 8·365 + 2 (leap years) = 2,922 days; cost = 2,922·$0.09 = $262.98.
- Repairs: 3·$68.75 = $206.25.
- Lifetime cost = total card payments + electricity + repairs ≈ 1,059.84 + 262.98 + 206.25 = $1,528.47.

Therefore choice (a) $1,528.47.