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4. Charlie changed car insurance companies and received an insurance policy covering two vehicles for 6 months for a premium of $650 plus $32.50 sales
4. Charlie changed car insurance companies and received an insurance policy covering two vehicles for 6 months for a premium of $650 plus $32.50 sales tax (total $682.50). The new policy takes effect on December 1. Charlie was given three options in which to pay this amount. The first option was to simply pay the $682.50 on December 1. The other two options consisted of paying the premium in instalments as follows a. Option 2 allows Charlie to pay the premium over the next 6 months. The insurancee company levels a financing charge of 3% on the premium (not including the tax). The total premium ($650, plus $19.50 finance charge, plus $32.50 tax- $702) is then divided by 6 to get a monthly payment of $117. However, the company requires the first two months' payments p front (i.e., on December 1), with the four remaining payments made at the start of each of the next four months (Jan. 1, Feb. 1, Mar. 1, Apr. 1). The insurance company claims it is charging Charlie an annual rate of interest of only 3% (better than you could get at a bank!). However, what is the actual rate, j1, being charged? (Use interpolation to calculate j12 and then calculate equivalent j1.) b. Charlie is buying the insurance through a broker and the broker provides a third option, which he claims avoids the 3% financing charge. For a $15 service fee, Charlie can pay the premium in 3 equal monthly instalments, with the first payment paid on December 1 The monthly payment would be $232.50 (i.e., $650 plus $32.50 tax plus $15 service fee all divided by 3). Is this really a better deal? To determine, calculate the actual rate, j1, being charged. (Again, use interpolation to calculate j12 and then calculate equivalent j1.)
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