Discussion
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, money being at 18% per annum. Which is the better offer?
Answer: A
\[ \text{Amount} = \text{PW}\left(1 + \frac{RT}{100}\right), \qquad \text{TD} = \text{Amount} - \text{PW} \]
Bring the credit offer back to today's money and then compare.
\[ T = \frac{8}{12} = \frac{2}{3} \text{ year}, \qquad \frac{RT}{100} = \frac{18 \times 2/3}{100} = 0.12 \]
\[ \text{PW of credit offer} = \frac{12880}{1.12} = \text{Rs. } 11500 \]
\[ 12000 > 11500 \]
So Rs. 12,000 in cash is worth Rs. 500 more. Eight months of interest at 18% costs more than the extra Rs. 880 the credit offer promises.
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