When Pickton Furniture Offers Customers Two Years to Pay for a $4,500

Multiple Choice

When Pickton Furniture offers customers two years to pay for a $4,500 bedroom suite, it uses an implicit interest rate of 16%. Furniture paid in cash is priced net of financing. How much would a couple save if they borrowed against their credit line so they could pay cash for the suite and then paid off the line in a lump sum at the end of two years? The credit line carries an interest rate of 9% per year compounded annually.

A) $1,234
B) $1,156
C) $629
D) $526
E) $598