Shirley, a recent college? graduate, excitedly described to her older sister the $1,510 sofa, table, and...

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Shirley, a recent college? graduate, excitedly described to herolder sister the $1,510 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 13.25 percent interest.?Now, assume the store uses the? add-on method of interestcalculation. Calculate the monthly payment and total cost with a?one-year repayment period and 11.25 percent interest. Using theinformation? above, how much interest will Shirley? "save" or berebated if she can repay the loans after six? months?
For a bank loan assuming a? one-year repayment period and13.25?% ?interest, the monthly payment is?

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	One year repayment and 13.25% interest

Pv	Amount of Purchase	$1,510
Rate	Monthly interest=(13.25/12)%=	1.10417%
Nper	Number of months of payment	12
PMT	Monthly Payment	$135.05	(using PMT function of excelwith Rate=1.10417%,Nper=12, Pv=-1510)
	Excel command:PMT(1.10417%,12,-1510)

	Total Cost=135.05*12=	$1,620.56

	One year repayment and 11.25% interest(ADD ON METHOD)

	Amount of Purchase	$1,510
	Total interest in one year =1510*11.25%	$169.88
	Total Principal to be paid	$1,510
	Total Payments=1510+169.88=	$1,680
	Number of months of payment	12
	Monthly Payment=1680/12	$139.99
	Total Cost	$1,680

	Repayment after 6 months at 13.25% interest	$1,606.93	1510*(1.1325^0.5)
	Saving in interest =1620.56-1606.93	$13.63

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Transcribed Image Text

Shirley, a recent college? graduate, excitedly described to herolder sister the $1,510 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 13.25 percent interest.?Now, assume the store uses the? add-on method of interestcalculation. Calculate the monthly payment and total cost with a?one-year repayment period and 11.25 percent interest. Using theinformation? above, how much interest will Shirley? "save" or berebated if she can repay the loans after six? months?For a bank loan assuming a? one-year repayment period and13.25?% ?interest, the monthly payment is?