Shirley, a recent college graduate, excitedly described to her older sister the $1010 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 13.50 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 11.50 percent interest. Explain why the bank payment and total cost are lower even though the stated interest rate is higher.

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