Reference no: EM131622986

Question: Sara had just rented her first apartment starting December 1 before beginning college in January. The apartment had washer and dryer hook-ups, so Sara wanted to buy the appliances to avoid trips to the laundromat. The Saturday newspaper had an advertisement for a local appliance store offering "90 days, same as cash!" financing. Sara asked how the financing worked and learned that she could pay for the washer and dryer anytime during the first 90 days for the purchase price plus sales tax. If she waited longer, she would have to pay the purchase price, plus sales tax, plus 26.8% annual simple interest for the first 90 days, plus 3% simple interest per month (or any part of a month) on the unpaid balance after 90 days. Together, the washer and dryer cost $699 plus the 8.25% sales tax. Sara knew that her tax refund from the IRS would be $1,000 so she bought the washer and dryer confident that she could pay off the balance within the 90 days.

1. If Sara pays off the balance within 90 days, how much will she pay?

2. If Sara bought the washer and dryer on December 15, using the exact interest, what is her deadline for paying no interest in a non-leap year? In a leap year? Is the finance company likely to use exact or ordinary interest and why?

3. If Sara's IRS refund does not come until April 1, what is her payoff amount? (Assume ordinary interest and a non-leap year.)