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bonnie wants to buy a top-of-the-line sewing machine that does embroidering and fancy stitching for $1,000. she can buy it on her credit card and pay interest of 12 percent on it for a year or she can cash in a bond that she has had for many years and earns six percent interest and pay cash for the machine. how much does she save in net interest cost (explicit minus implicit) for the year if she sells the bond and pays cash?

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abiolataiwo2015

If bonnie wants to buy a top-of-the-line sewing machine that does embroidering and fancy stitching for $1,000. The  amount  she save in net interest cost (explicit minus implicit) for the year if she sells the bond and pays cash is $50.

How to find the net interest cost?

Using this formula to find the net interest cost

Net interest cost = Explicit - Implicit

First step is to calculate the explicit cost

Explicit cost = (12% × $1,000)

Explicit  cost = $120

Second step is to calculate the implicit cost

Implicit cost = (6% × $1,000)

Implicit cost = $60

Now let calculate the net interest cost

Net interest cost = $120 -$60

Net interest cost = $60

Therefore we can conclude that the net interest cost is $60.

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