Question

bill was going to purchase a new mountain bike with his credit card, which he thought had an apr of 13%. his plan was to keep his payments around $75 per month for 24 months. he then found out that his credit card actually had an apr of 17%. which of the following would not allow bill to purchase a bike while keeping the same monthly payment?
a. purchase a bike that costs less.
b. wait for the bike he wants to go on sale for a cheaper price.
c. purchase the bike in a part of town with a higher sales tax rate.
d. increase the number of months he wants to use to pay off the balance.

Explanation:

Analyze the impact of a higher APR

Using the Annual Percentage Rate knowledge point
An increase in the APR from \(13\%\) to \(17\%\) increases the interest charges, which raises the monthly payment if the purchase price and repayment period remain unchanged. To keep the monthly payment at \(24\) payments of approximately \(\$75\), Bill must offset this higher interest cost by reducing the principal balance or extending the repayment term.

Evaluate options that reduce the principal

Using the Sales Tax Calculation knowledge point

• Option (a), purchasing a cheaper bike, directly reduces the principal balance, lowering the monthly payment.
• Option (b), waiting for a sale, also reduces the purchase price and principal balance, lowering the monthly payment.
• Option (c), buying in an area with a higher sales tax rate, increases the total purchase cost (principal), which increases the monthly payment.

Evaluate options that adjust the repayment term

• Option (d), increasing the number of months to pay off the balance, spreads the principal and interest over a longer period, which lowers the individual monthly payment.

Identify the incorrect action

Since option (c) increases the total cost and therefore increases the monthly payment, it is the only action that would not allow Bill to keep his monthly payment at the desired level.

Answer:

• a. Purchase a bike that costs less.
• b. Wait for the bike he wants to go on sale for a cheaper price.
• c. Purchase the bike in a part of town with a higher sales tax rate. (Correct answer)
• d. Increase the number of months he wants to use to pay off the balance.