A retailer advertises a television for sale. The price of the television is $2000. The retailer offers two payment plans: Plan A A price reduction of 20% for a cash payment. Plan B Extended credit (deferred payments) of $70 a month spread over 3 years.

Mark scheme

Marking points from the official mark scheme (May/June 2010). The mark or mark type is shown in brackets.

1. [3] (a)(i) Plan A $2000 × 0.2 = $400 (1 mark); $2000 – $400 [1] = $1600 (1 mark); OFR applies Please award full marks for correct answers without working
2. [3] (a)(ii) Plan B $70 × 12 = $840 (1 mark) × 3 years (1 mark) = $2520 (1 mark); OFR applies Please award full marks for correct answers without working
3. [4] (b) Any two well-developed points × 2 marks – When the buyer has insufficient cash to pay and so needs to borrow; When the buyer is likely to have expensive purchases in the near future and so does not want to use cash for this purchase; When the buyer is offered a good deal by the seller e.g. low repayment terms/aftersales service; When the buyer is buying on impulse and has not considered the alternative; When the buyer could make more money by investing than the interest that is to be paid; When may need to return it; Any other relevant developed point
4. [6] (c) Level 2 (4-6 marks) Has described some ways of financing payment for the television and has recommended the best method of finance with reasoning. L2 4 marks max for 1 method of finance. A customer could finance payment for the television by taking out a bank loan. The customer would have to pay interest at a fixed rate and a formal agreement would be drawn up. The customer might also obtain a cash advance on his credit card but this would be an expensive way of providing finance as interest charges are high. Another method of financing the purchase might be to obtain an overdraft on the current account. Interest is paid only on the daily amount overdrawn. I would recommend using a bank loan as regular payments are made, interest paid is relatively low and the payments can be spread over a couple of years. (Allow savings/credit card but not HP.) Level 1 (1-3 marks) Has suggested ways of financing payment for the television OR has recommended a method of finance with some reasoning OR has listed some methods of finance with or without a recommendation. I would borrow from my family, use hire purchase or make use of an overdraft. The overdraft might be useful. I would not have to pay much interest when I obtain my pay. It would reduce my overdraft.
5. [4] (d) Any four actions × 1 mark each or 2 × 2 marks – She should contact the retailer/take back TV; Produce the receipt; Find the guarantee/warranty – the television should be covered by the guarantee; Ask for the television to be repaired; If the television is not repaired satisfactorily she should ask for it to be replaced; Or ask for a refund of what she paid.; Any other relevant point; Contact consumer protection arg etc. = 1 mark max