Answer QUESTION " 2D" ONLY AND SHOW FULL WORK AND EXPLANATION!!

2. (20 points), loan with annuity.. present value in excel

You're given with a 6-year auto loan from your credit union. Suppose the car costs $56,000 and your down payment is $6,500. The current market interest rate is 3.2% for the short-term loans with the same creditability as yours. Answer the following questions:

a)Given that the APR (namely the Annual Percentage Rate. That is, the stated interest agreed on the loan) of the loan is 3.2% per year, what is the monthly payment if you're intended to have the loan for 6 years?

1)$800.15 2) $1350.06 3) $756.52 4) $520.17 5) none of the above.

=PMT(B4/12,B1,B2-B3)

Time (N) 72

Cost $56,000.00

Down Payment $6,500.00

Interest Rate 3.20%

Monthly Payment $756.52

The total loan amount = 49500

Interest rate = 3.2 %

Monthly interest = 3.2/ 12 = 0.266667%

n= 6 * 12 months = 70

Loan = Annuity * PVIFA ( r%, n)

49500 = A * PVIFA ( 0.433%,60)

A= $$756.52

b)What is the effective annual rate if the loan is compounded monthly?

1)3.5% 2) 3.247% 3) 2.85% 4) 3.45% 5) none of the above.

Effective Annual Rate is [1+(0.032/12)]^12

Effective Annual Rate= 3.247%

Formula used in excel=EFFECT(C17,12)

If the loan is compouned monthly, the stated interest is

r =( 1+ r/12)^12 - 1

12

=(1+ 0.032/12)^12 - 1 = 3.247%

c)Suppose the credit union says that if you'd like to retire the loan earlier, say at the end of the 3^rd year, you need to pay (say) $26,000 for the rest of the loan, would you take it given that you have no difficulty to generate the cash flow? Why or why not?

No I would not take it because at the end of year 3, or the 36^th payment, the remaining balance to be paid for the next 36 months is $25,935.37, which is less than $26,0000.

=PV(3.2%/12,36,-756.52)= $25,935.37

d)Suppose the original agreement that you signed with credit union is to have a 3-year loan and pay back the loan with $24,000 at the end of year 3, how much will be your monthly payment if this how you finance the purchase?

1) $650 2) $520.5 3) $320 4) $754.82 5) none of the above.