Question

paul is going to buy a collectible vintage painting from a local art gallery. the painting is priced at $600 in the gallery. the gallery owner does accept credit cards but prefers cash. in fact, he offers to give paul a 5% discount if he can pay in cash. paul doesnt have any cash but can get a cash advance on his credit card. his credit card has an apr of 16% on credit purchases and a 32% apr on cash advances. assuming paul wants to pay the painting off over 12 months, which of the following is true?
a. paul will pay a total of $696, over 12 months, if he purchases the painting with his credit card.
b. paul will pay a total of $653.28, over 12 months, if he purchases the painting with his credit card.
c. paul will pay a total of $782.40, over 12 months, if he purchases the painting with a cash advance for discounted purchase price.
d. paul will pay a total of $708.96, over 12 months, if he purchases the painting with a cash advance for discounted purchase price.

Explanation:

Calculate credit card purchase payments

Using the Amortized Payment Calculation knowledge point

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Calculate cash advance payments

Using the Cash Advance Interest knowledge point

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Evaluate the given options

Comparing calculated totals with options:

• Option (a): Total is \( \$696 \) (Incorrect)
• Option (b): Total is \( \$653.28 \) (Correct)
• Option (c): Total is \( \$782.40 \) (Incorrect)
• Option (d): Total is \( \$708.96 \) (Incorrect)

Answer:

• (a) Paul will pay a total of $696, over 12 months, if he purchases the painting with his credit card.
• (b) Paul will pay a total of $653.28, over 12 months, if he purchases the painting with his credit card. (Correct answer)
• (c) Paul will pay a total of $782.40, over 12 months, if he purchases the painting with a cash advance for discounted purchase price.
• (d) Paul will pay a total of $708.96, over 12 months, if he purchases the painting with a cash advance for discounted purchase price.