Suppose you all decide you want to finance the trip with a loan. Find two differ

Question

Suppose you all decide you want to finance the trip with a loan. Find two different available offers (the internet is a good source). Make sure the interest rate and loan length are both different in each option. Calculate the monthly payment amount, the total amount you will pay over the life of the loan and the total interest you will pay.   NOTE: Do not provide personal information on the internet. You can find loan rates on major bank and credit union websites without providing personal information.

Loan payment formula: PMT = P*(r/n)/(1 - (1 + r/n)^(-n*t))

PMT is the payment required to pay off a loan of $P at interest rate, r%, compounded n times per year for t years.

You must use Excel formulas including cell references to calculate the loan payment, total paid and interest paid.

Discuss which loan would be a better option and why:

Loan A Loan B Principal (P) (same for both loans) $8,656 $8,656 rate ( r) 11% 13.99% # of Compoundings per year (n) 1 1 time in years (t) 1 1 Payment (PMT) formula formula Total Paid formula formula Interest Paid formula formula

Explanation / Answer

clearly loan A is better as interest rate is low ,hence we have to pay less interest

here we are paying per year , n = 1

whereas if we want to pay monthly , n = 12

Loan A Loan B Principal (P) (same for both loans) 8656 8656 rate ( r) 11% 13.99% # of Compoundings per year (n) 1 1 time in years (t) 1 1 Payment (PMT) 9608.16 9866.974 Total Paid 9608.16 9866.974 Interest Paid 952.16 1210.974

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