Question

Shirley, a recent college​ graduate, excitedly described to her older sister the $1,510 sofa, table, and chairs she found today.​ However, when asked she could not tell her sister which interest calculation method was to be used on her​ credit-based purchase. Calculate the monthly payments and total cost for a bank loan assuming a​one-year repayment period and 13.25 percent interest.​ Now, assume the store uses the​ add-on method of interest calculation. Calculate the monthly payment and total cost with a​ one-year repayment period and 11.25 percent interest. Using the information​ above, how much interest will Shirley​ "save" or be rebated if she can repay the loans after six​ months?

For a bank loan assuming a​ one-year repayment period and 13.25​% ​interest, the monthly payment is?

Answer 1

		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