Refer to Problem2. For each of the five payment schedules, determine the present worth of the loan

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Refer to Problem2. For each of the five payment schedules, determine the present worth of the loan payments made by the borrower. Use an Excel® spreadsheet and program it such that you can enter different interest rates for the borrower’s TVOM. Use TVOM rates of 4 percent, 8.5 percent, and 13 percent.

Refer to problem 2

You need a good preowned car following college. For the car you want, you need a loan of \($12\),000. With your limited credit record and the best rate available to you being 10 percent, you have decided to get creative. You know your grandparents are financially comfortable and are invested rather conservatively. You guess their average return is 7 percent or less. You propose, and they accept, the win-win proposition that they loan you the \($12\),000 at 8.5 percent, splitting the difference between their 7 percent and your best alternative, 10 percent. End-of-year payments will be made. Your grandparents want to see some different repayment schedules over 5 years. Develop an Excel®
table to illustrate to show your grandparents various cash flow profiles, assuming payback follows

a. Plan 1: Pay the accumulated interest at the end of each interest period and repay the principal at the end of the loan period.

b. Plan 2: Make equal principal payments, plus interest on the unpaid balance at the end of the period.

c. Plan 3: Make equal end-of-period payments.

d. Plan 4: Make a single payment of principal and interest at the end of the loan period.

e. A different plan: Pay an amount of principal at the end of the first year, then increase it each year thereafter by 20 percent, just paying off the loan principal at the end of the fifth year. In addition, pay the accumulated interest at the end of each interest period.

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Related Book For  book-img-for-question

Principles Of Engineering Economic Analysis

ISBN: 9781118163832

6th Edition

Authors: John A. White, Kenneth E. Case, David B. Pratt

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