Say you want to buy a set of four new tires for your car. Four types with differ
ID: 2690154 • Letter: S
Question
Say you want to buy a set of four new tires for your car. Four types with differing warranties and prices are available. Tire A has a warranty of 12 months and the set sells for $220. B has a warranty of 24 months and the set sells for $260. C has a warranty of 36 months and the set sells for $380. D has a warranty of 48 months and the set sells for $480. If you estimate that the warranty is a good measure of the useful life of the tires, at an interest rate of 2% APR, which tire set would cost you the least per month and hence would be your best bet?Explanation / Answer
Say you want to buy a set of four new tires for your car. Four types with differing warranties and prices are available.
Tire A has a warranty of 12 months and the set sells for $220.
B has a warranty of 24 months and the set sells for $260.
C has a warranty of 36 months and the set sells for $380.
D has a warranty of 48 months and the set sells for $480.
If you estimate that the warranty is a good measure of the useful life of the tires, at an interest rate of 2% APR,
which tire set would cost you the least per month and hence would be your best bet?
B has a warranty of 24 months and the set sells for $260.
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