Question

Shirley, a recent college​ graduate, excitedly described to her older sister the ​$1,760 ​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 14.5 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 12.5 percent interest. Explain why the bank payment and total cost are lower even though the stated interest rate is higher.  

a) The monthly payment for a bank loan assuming​ one-year repayment period and 14.5 percent interest is ​$158.44. (Round to the nearest​ cent.)

b) The total cost for a bank loan assuming​ one-year repayment period and 14.5 percent interest is $1,901.28. ​(Round to the nearest​ cent.)

c) If the store uses the​ add-on method of interest​ calculation, the monthly payment with a​ one-year repayment period and 12.5 percent interest is ​$______ .(Round to the nearest​ cent.)

Answer 1

Given,

Loan amount (L) = $ 1760

Interest rate = 14.5% or 0.145

Interest rate ( add-on method ) = 12.5%

No. of year = 1

Solution :-