Karen and Wayne Need to Buy a Refrigerator Because Theirs

question 102

Multiple Choice

Karen and Wayne need to buy a refrigerator because theirs just broke. Unfortunately, their savings account is depleted, and they will need to borrow money to buy a new one. The bank offers them a personal loan at 21% (APR) , and BigBox offers them an installment loan at 18% (add-on-rate) . Suppose that the refrigerator at BigBox costs $1,650 plus 7% sales tax, and Karen and Wayne plan to pay for the refrigerator for 4 years. Should they finance it with the bank or with BigBox? Why?

• A) BigBox because BigBox's APR of 21.0% is less than the bank's APR of 35.3%.
• B) the bank because the bank's add-on rate of 35.3% is less than BigBox's APR.
• C) BigBox because BigBox's APR of 17.6% is less than the bank's APR of 21.0%.
• D) the bank because the bank's APR of 21.0% is less than BigBox's APR of 35.3%.
• E) BigBox because BigBox's add-on rate is less than the bank's APR of 21.0%.