Your parents are considering renting you an apartment instead of paying room and board at your college. The month-to-month contract is $539.00/month and the annual contract is $467.00/month. If you break the annual contract, there is a 2-month penalty.

Question

How much do your parents save if you stay a whole year by entering into an annual contract rather than a month-to-month contract? Round to the nearest penny.

Answer 1

To find out how much your parents save by entering into an annual contract rather than a month-to-month contract, first calculate the total cost for the annual contract for one year: $467.00/month * 12 months = $5,604.00

Then calculate the total cost for the month-to-month contract for one year: $539.00/month * 12 months = $6,468.00

The difference in cost between the two contracts is: $6,468.00 - $5,604.00 = $864.00

However, if you break the annual contract, there is a 2-month penalty, so the total cost of the annual contract would be: $5,604.00 + 2*$467.00 = $6,538.00

Therefore, the total cost saved by entering into an annual contract rather than a month-to-month contract is: $6,468.00 - $6,538.00 = $(70.00)

Therefore, your parents would save $70.00 by entering into an annual contract rather than a month-to-month contract.