Overdue debt for medical books

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Reference no: EM13155169

Mary Houser has $1,200 overdue debt for medical books and supplies at Ken's Bookstore. She has only $400 in her checking account and doesn't want her parents to know about the debt. Ken's tells her that she may settle the account in one of two ways since she can't pay it all now:

1. Pay $400 now and $1,000 when she completes her residency, three years from now

2. Pay $1,600 one year after completion of residency, three years from today.

Assuming that the cost of money is the only factor in Mary's decision and that the cost of money to her is 8%, which alternative should she choose.

Reference no: EM13155169

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