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

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Finance

?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?

Answer & Explanation Solved by verified expert
4.3 Ratings (670 Votes)

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?

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