Auto Loan

All group activities must include a statement signed by all members of your group that each group member fully participated in the activity. Save it to the desktop and save frequently during the hour.

To use the PMT Function...
Choose the Function Wizard button then Financial in the left column and PMT in the right column. A screen will appear and you will be prompted to enter values.

1. You have decided to buy a 2003 Chevy Cavalier. The total cost with tax, title, license and optional equipment is $20,000. You will make a downpayment equal to 20% of the total cost of the car. The remaining amount will be financed.

You have two financing options.

Option 1 - Get $3,000 cash back. This amount will reduce the amount you need to finance. You will be able to get a 5 year car loan on the remaining amount with a 5.70% interest rate from your bank.

Option 2 - Get no cash back and finance the entire amount. The loan will be for 3 years with a 0.0% interest rate from GMAC financing.

a. What is the amount of money that you will need to borrow under Option 1?

b. Make an amortization table for Option 1 and verify that your ending balance after 60 months is zero. Paste the first five lines (months 0 - 4) in your Word document. What is your monthly payment? What is the total amount paid over the term on the loan?

c. How much will you need to borrow if you choose option 2? What is your monthly payment?

d. Which financing option should you choose? Explain.

2. You have decided to buy a 2003 Chevy Blazer. The total cost with tax, title, license and optional equipment is $23,000. You will make a down payment equal to 20% of the total cost of the Blazer. The remaining amount will be financed.

You have two financing options.

Option 1 - Get $2,500 cash back. This amount will reduce the amount you need to finance. You will be able to get a 5 year car loan on the remaining amount with a 6.50% interest rate from your bank.

Option 2 - Get no cash back and finance the remaining amount. The loan will be for 3 years with a 0.0% interest rate from GMAC financing.

a. What is the amount of money that you will need to borrow under option 1?

c. How much will you need to borrow if you choose option 2. What is your monthly payment?

d. Which financing option should you choose? Explain.

3. Suppose that you have a student loan of $25,000 with an APR of 8% for 12 years.

b. Suppose that you would like pay the loan off in 7 years instead of 12. What monthly payments will you need to make assuming the same interest rate?

c. Compare that total amounts you'll pay over the loan term if you pay the loan off in 12 years versus 7 years. How much do you save?

4. As we learned above, loan interest calculated monthly is computed as follows (where n = 12) :

In many cases, interest rates are converted to a daily rate, n = 365 and then multiplied by the number of days since the last payment (if it is the first payment, interest is calculated from the date of the loan) to determine the amount of interest due. The updated formula is as follows:

Now lets apply this to one of the latest loan gimmicks, Payday Loans. My Cash Now offers Payday Loans for a loan fee (finance charge). The loan fee is actually the interest paid on the loan. Using the formula above, you can determine the APR knowing the loan fee, the loan amount and the loan term (in days).

a. Let's assume that you need $100 and you can't wait until your next paycheck. You stop by My Cash Now and they tell you they can lend you $100 for 14 days and the loan fee (finance charge) is $18.62. Using the formula above, calculate the APR.

b. How does this rate compare to the other Annual Percentage Rates (APR) we have discussed and used in class?

Month	Beg Balance	Payment	Interest	Principal	End Balance
0
1
2