The owners of Cheers in Town, a neighbourhood restaurant, have plans to purchase a new plasma TV. If they finance the purchase through the store’s promotional financing option, they would pay $97 at the end of each month for three years, starting with the first month.
(a) With the store’s promotional financing option, what is the cash price of the TV if the interest rate on the loan is 12.9% compounded monthly?
(b) If they borrow from the bank at 13.5% compounded monthly, the payments would be $93 per month for three years. Which option results in the lower purchase price, and by how much?