Tom has offered to sell Julian his motorcycle for $1,200. Julian knows this is a very good deal, since the same motorcycle can be purchased at the dealership for $1,800. Since Julian doesn’t have $1,200 and Tom does not accept credit cards, they both think a cash advance might be a good idea. Julian’s credit card company can offer him a cash advance for the $1,200 he needs at an interest rate of 26%. He would then pay off the balance in 24 months. Should Julian use the cash advance to purchase the motorcycle? a. No. Julian would be paying too much in interest to warrant using a cash advance. b. Yes. Even with the interest, the total cost of the motorcycle would be less than at the dealership. c. Yes. The interest rate on the cash advance is low. Julian will not have to pay much interest on the cash advance. d. No. The high interest rate on the cash advance would make the purchase of the motorcycle almost twice than the price at the dealership.
I would say that it is a good deal because if we assume that the problem is about simple interest, then Julian will pay 50 per month times 26% of that. If we add up all the sums,, Julian will pay 1200 + a total interest 312 at the end of 24 months. This totals 1512 which is still cheaper than paying 1800 for a bike in the store.