Recently, the concept of "buy now, pay later" is increasingly getting popular. This allows shoppers to buy things now without paying the bill at checkout.

Assume you buy a new set of furniture and appliances for your new apartment. You are given the provision that you do not need to pay the bill at checkout and as long as you pay it within the next three years from the date of purchase, no interest will be charged. However, if you are even one day late in paying the bill, the store will charge you interest for the past 3 years.

Suppose you forget about the bill and pay it one day late.

CHOOSE A NUMBER BETWEEN $5,000 and $15,000 for the value of the furniture and appliances. This will be your Principal Amount, P. It does not necessarily have to be a whole number.

P = $______________

Now, answer the following questions and round your answer to the nearest cent.

1. How much interest will you pay if the store charges you 26.25% simple interest at t = 3 years?

How much is your total bill - the value of the appliance plus the interest?

SHOW YOUR WORK BELOW:

SIMPLE INTEREST:

TOTAL BILL:

1. How much is your total bill if, instead, the store charges you 26.25% interest compounded daily at t=3 years?

How much compound interest will you pay?

SHOW YOUR WORK BELOW:

TOTAL BILL:

COMPOUND INTEREST:

1. Compare and analyze the results of your calculations from questions (a) and (b). Which interest is higher?

1. Provide a COLLEGE LEVEL analysis on the following:

What are the pros and cons of this provision?

Have you tried this "buy now, pay later" option?

Do you think this option of deferred billing is good for young shoppers like you? Why or why not?

QUESTION 2 (50 PTS)

Suppose you have $5,000 to invest today. You are given 3 choices on where to invest your money.

Account #1	12.25% compounded quarterly
Account #2	12.23% compounded weekly
Account #3	12.10% compounded continuously

1. Calculate the APR (assume P=$100, t=1 year) for each account. Round to 2 decimal places, in percent form.

	APR
Account #1
Account #2
Account #3

SHOW YOUR WORK BELOW:

1. Based on your calculations, in which account will you invest your $5,000? Why?

1. How many years from now do you plan to retire? t (number of years): __________________

How much money will you have after t years in the account that you have chosen when you retire? How much in total interest will you gain? In other words, from $5,000, by how much did your money increase?

SHOW YOUR WORK BELOW:

Maturity value after t years:

Compound Interest:

1. In real life, if you have $5,000, will you make this investment? Why? If not, where would you rather invest your money?

Provide a COLLEGE LEVEL analysis below: