Question: Your Chihuahua Sophie* got her head stuck in a peanut butter jar and required a visit to the emergency room at the CSU vet hospital. You know the bill is going to be expensive, but are still shocked when you find out that the total bill is $5,000. They are keeping her for observation overnight, so you head home to cry in your beer while trying to decide how to cover the cost given three different options:
- You can use VetCredit, a loan designed to help pet owners cover the cost of their vet bills, with guaranteed approval. The company requires monthly payments sufficient to pay the cost in full within 2 years. Your payments will be $263 with this option.
- Alternatively, you can use your credit card. You decide that you want to pay the bill off in 3 years, and have calculated that the minimum monthly payment will be $198.80.
- If you pay the bill in full, the vet hospital will give you a 10% cash discount. Your parents were going to put $5,000 into a Roth IRA, but have offered to loan you the money if you pay them $191 per month for 3 years.
1. What is the annual rate of return that would be required for your parents to be indifferent between investing in the Roth IRA and loaning you the money? Round to the nearest WHOLE percent. Enter as a number, not decimal, and do not include a percentage sign. (i.e. if your answer is 5%, you will type 5 as your answer in Canvas).
2. Based on your calculations, which option should you choose for paying the bill?
A. VetCredit
B. Your credit card
C. The loan from your parents
D. Any of these options are advisable given this information