Issue:

Johnny Bravo has two loan alternatives to finance his home mortgage. The house that he is interested in is for sale for ($ 180,000), but he can give a prompt payment of ($ 35,000).

(1) The Little Giving Bank offers Johnny a loan for the balance of the debt at an effective annual interest rate of 3.0% (APY), which is based on monthly payments. The loan is expected to be repaid in 15 years.

(2) The Cooperative SuperPeso offers a compound annual rate of 3.5% per month and it is assumed that he will repay the loan in 20 years.

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Required

a) Make a flow chart for both alternatives.

b) Evaluate both financing options and make a recommendation to Johnny. Justify your

answer numerically.

c) Based on your recommendation in part (b) assume that Johnny wins the Lottery and decides to pay the loan at half of the established term, having already made the first half of the payments.

a. Determine the total amount to pay.

b. Estimate interest savings.