it will take cody 3 months to save up enough money to purchase a stereo. he has a credit card with a 12% interest rate. cody’s friend mark says it will cost cody less money if he saves for 3 months instead of using the credit card. is mark correct?
Is Mark correct in advising Cody to save for 3 months instead of using a credit card with a 12% interest rate?
Cody’s situation involves deciding whether to save money for 3 months to purchase a stereo or use a credit card with a 12% interest rate for the purchase. To determine if Mark is correct, let’s analyze the scenario.
If Cody chooses to save money for 3 months, he will avoid paying any interest, resulting in a total cost equal to the price of the stereo. On the other hand, if he uses the credit card, he will incur an additional cost due to the interest charged. To compare, let’s calculate the total cost using the credit card:
The formula to calculate the total amount paid using the credit card is:
Total \, cost = Principal + (Principal \times Interest \, rate \times Time)
Given that Cody’s savings period is 3 months, the formula becomes:
Total \, cost = Principal + (Principal \times 0.12 \times \frac{3}{12})
In this case, using the credit card would result in a higher total cost compared to saving money for 3 months. Therefore, Mark is correct in advising Cody to save for 3 months instead of using the credit card with a 12% interest rate.