Question

A man wants to sell his scooter. there are two offers, one at rs. 12,000 cash and the other, a credit of rs. 12,880 to be paid after 8 months, at the interest rate of 18% per annum. which is the better offer?

Answer 1

The 12k offer is better logically, because at the rate of 18% p.a it will take a lot of years to give 12,880 and chances are that the scooter will go through depreciation hence lowering it value. You can approach this question from various ways.

Answer 2

Answer:

Sell it at 12000

Step-by-step explanation:

To answer this question we need to compare the present worth for the two options.

The present worth for the cash option is Rs 12000.

As for the credit option we need to calculate the present worth.

Present Worth = 100 × Amount /[100 + (Rate × time)]

Rate = this is the percentage rate.

Time = This is the time period measured in years.

We do the substitution as follows :

Present Worth = 12880 × 100 / [100 + (18 × 8/12)

= 1288000 / (100 + 12)

= 1288000/112

= 11500

The present worth of the credit option is lower than the present worth of the cash option therefore it is better to sell the scooter at cash offer.