Choose the better offer (cash vs 8-month credit at 18% p.a.): Vivek has two offers for selling his scooter: (i) Rs 12,000 cash; (ii) Rs 12,880 to be paid after 8 months. If money is worth 18% per annum (simple interest), which offer is better?

Difficulty: Easy

12,800
12,000
Both equal
Can't say

Correct Answer: 12,000

Explanation:

Introduction / Context:
Compare offers by converting the credit offer to its present worth at the given simple interest rate. The better offer is the one with the higher present value today.

Given Data / Assumptions:

Cash offer = Rs 12,000.
Credit offer = Rs 12,880 after 8 months.
r = 18% p.a.; t = 8/12 year = 2/3 year.

Concept / Approach:
Present worth PW = F / (1 + r * t). Compute the PW of Rs 12,880 due after 8 months and compare with Rs 12,000.

Step-by-Step Solution:

1 + r t = 1 + 0.18 * (2/3) = 1 + 0.12 = 1.12.PW (credit) = 12880 / 1.12 = Rs 11,500.Rs 11,500 < Rs 12,000 → better to take cash.

Verification / Alternative check:
Future value of Rs 12,000 in 8 months at 18% p.a. is 12000 * 1.12 = 13440, which exceeds 12880, confirming cash is superior in present terms.

Why Other Options Are Wrong:
12,800 is not an offer; “Both equal”/“Can’t say” are contradicted by the PW comparison.

Common Pitfalls:
Comparing face amounts without discounting; using compound interest accidentally.

Choose the better offer (cash vs 8-month credit at 18% p.a.): Vivek has two offers for selling his scooter: (i) Rs 12,000 cash; (ii) Rs 12,880 to be paid after 8 months. If money is worth 18% per annum (simple interest), which offer is better?

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