Sarah bought a lawnmower for $320. She signed up for the buy now pay later plan at the store with the following conditions: $100 down and payments of $25 for the next 12 months. The extra cost paid by taking this plan is equivalent to what actual yearly rate of interest? A. 67% B. 65% C. 25% D. 85%
Cost of the lawnmower bought by Sarah = $320 Amount of down payment made by Sarah = $100 Amount paid by Sarah in 12 months = (12 * 25) dollars = 300 dollars Total amount paid by Sarah = (300 + 100) dollars = 400 dollars Excess amount paid as interest by Sarah = (400 - 320) dollars = 80 dollars Actual yearly rate of interest paid by Sarah = (80/320) * 100 percent = 25 percent So 25% yearly interest was paid by Sarah. The correct option is option "C".
