?Shirley, a recent college? graduate, excitedly described to her older sister the ?$1,500 sofa, table, and...

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?Shirley, a recent college? graduate, excitedly described to herolder sister the ?$1,500 sofa, table, and chairs she found today.?However, when asked she could not tell her sister which interestcalculation method was to be used on her? credit-based purchase.Calculate the monthly payments and total cost for a bank loanassuming a?one-year repayment period and 14 percent interest.? Now,assume the store uses the? add-on method of interest calculation.Calculate the monthly payment and total cost with a? one-yearrepayment period and 12 percent interest. Using the information?above, how much interest will Shirley? "save" or be rebated if shecan repay the loans after six? months?

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	One year repayment and 14% interest

Pv	Amount of Purchase	$1,500
Rate	Monthly interest=(14/12)%=	1.16667%
Nper	Number of months of payment	12
PMT	Monthly Payment	$134.68	(using PMT function of excelwith Rate=1.16667%,Nper=12, Pv=-15000)
	Excel command: PMT(1.16667%,12,-1500)

	Total Cost=134.68*12=	$1,616.17

	One year repayment and 12% interest

Pv	Amount of Purchase	$1,500
Rate	Monthly interest=(12/12)%=	1%
Nper	Number of months of payment	12
PMT	Monthly Payment	$133.27	(using PMT function of excelwith Rate=1%,Nper=12, Pv=-15000)
	Excel command: PMT(1%,12,-1500)

	Total Cost=133.27*12=	$1,599.28

	Future Value of repayment after 6 months	$819.88	(using FV function of excelwith Rate=1%,Nper=6, Pmt=-133.27)
	Excel Command: FV(1%,6,-133.27)
	Future Value of Loan after 6 months	$1,592.28	(using FV function of excelwith Rate=1%,Nper=6, Pv=-1500)
	Excel Command: FV(1%,6,,-1500)

	Amount to be paid at end of six months	$772.40	(1592.28-819.88)
	Payment during six months=133.27*6	$799.64
	Total Payment	$1,572.04
	Savings in interest =1616.17-1572.04	$44.13

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Transcribed Image Text

?Shirley, a recent college? graduate, excitedly described to herolder sister the ?$1,500 sofa, table, and chairs she found today.?However, when asked she could not tell her sister which interestcalculation method was to be used on her? credit-based purchase.Calculate the monthly payments and total cost for a bank loanassuming a?one-year repayment period and 14 percent interest.? Now,assume the store uses the? add-on method of interest calculation.Calculate the monthly payment and total cost with a? one-yearrepayment period and 12 percent interest. Using the information?above, how much interest will Shirley? "save" or be rebated if shecan repay the loans after six? months?