Question

Shirley, a recent college graduate, excitedly described to her older sister the $1,490 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 15 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 13 percent interest. Using the information above, how much interest will Shirley "save" or be rebated if she can reapy the loans after six months? Click on the table icon to view the MILPF table For a bank loan assuming a one-year repayment period and 15% interest, the monthly payment is $ 134.48 (Round to the nearest cent.) For a bank loan assuming a one-year repayment period and 15% interest, the total cost is $ 1613.76 (Round to the nearest cent.) For the add-on loan method with one-year repayment period and 13% interest, the monthly payment is $ (Round to the nearest cent.)

Answer 1

Add-On Borrowing: Borrowing = $ 1490, Interest Rate = 13 % and Repayment Tenure = 1 year or 12 months

Total Repayment Due = 1490 + 1490 x 0.13 = $ 1683.7

Monthly Payments = 1683.7 / 12 = $ 140.3083

Total Cost = 12 x 140.3083 = $ 1683.7

If the bank loan is repaid in 6-Months then let the required repayments be $ K

Therefore, 1490 = K x (1/0.0125) x [1-{1/(1.0125)^(6)}]

1490 = K x 5.74601

K = $ 259.31

Total Cost = 259.31 x 6 = $ 1555.86

Savings = 1613.76 - 1555.86 = $ 57.8977 ~ $ 57.9

Add-On Loan: Total Amount Outstanding = 1490 + 1490 x 0.13 x 0.5 = $ 1586.85 = Total Cost
Cost Saving = 1683.7 - 1586.85 = $ 96.85