Homework Sourse2 Car loan 1 or 2 sheets A sheet with explanations of your t
Solution
Dealer 1 Offer
Dealer 1 Offer
cost of car
30000
cost of car
30000
less discount
6000
less discount
0
amount to be borrowed
24000
amount to be borrowed
30000
rate of interest
12%
rate of interest
3.60%
loan tenure
5
loan tenure
4
annual payment = Using PMT function in MS excel =pmt(rate,nper,pv,fv,type)
PMT(12%,5,24000,0,0)
($6,657.83)
annual payment = Using PMT function in MS excel =pmt(rate,nper,pv,fv,type)
PMT(3.6%,4,30000,0,0)
($8,186.93)
total amount to be paid towards loan
6657.83*5
33289.15
total amount to be paid towards loan
8186.93*4
32747.72
less amount to be borrowed
24000
less amount to be borrowed
30000
less discount to be offered
6000
less discount to be offered
0
total cost of finaning
3289.15
total cost of finaning
2747.72
From the above calculation it is very clear that cost of financing is low in case of dealer two as benefits from low rate of interest is much more than the benefit of discount so it is better to go with option with dealer 2
Dealer 1 Offer
Dealer 1 Offer
cost of car
30000
cost of car
30000
less discount
6000
less discount
0
amount to be borrowed
24000
amount to be borrowed
30000
rate of interest
1%
rate of interest
0.30%
loan tenure
60
loan tenure
48
annual payment = Using PMT function in MS excel =pmt(rate,nper,pv,fv,type)
PMT(1%,60,24000,0,0)
($533.87)
annual payment = Using PMT function in MS excel =pmt(rate,nper,pv,fv,type)
PMT(.3%,48,30000,0,0)
($672.02)
total amount to be paid towards loan
533.87*60
32032.2
total amount to be paid towards loan
672.03*48
32257.44
less amount to be borrowed
24000
less amount to be borrowed
30000
less discount to be offered
6000
less discount to be offered
0
total cost of finaning
2032.2
total cost of finaning
2257.44
From the above calculation it is very clear that cost of financing is low in case of dealer one as benefits from discount is much more than the benefit of lower rate of interest so it is better to go with option with dealer 1. The decision changes because in option 1 borrowed amount is less than borrowed amount in option 2 and here compounding of interest is done on monthly basis so result changes
| Dealer 1 Offer | Dealer 1 Offer | |||||
| cost of car | 30000 | cost of car | 30000 | |||
| less discount | 6000 | less discount | 0 | |||
| amount to be borrowed | 24000 | amount to be borrowed | 30000 | |||
| rate of interest | 12% | rate of interest | 3.60% | |||
| loan tenure | 5 | loan tenure | 4 | |||
| annual payment = Using PMT function in MS excel =pmt(rate,nper,pv,fv,type) | PMT(12%,5,24000,0,0) | ($6,657.83) | annual payment = Using PMT function in MS excel =pmt(rate,nper,pv,fv,type) | PMT(3.6%,4,30000,0,0) | ($8,186.93) | |
| total amount to be paid towards loan | 6657.83*5 | 33289.15 | total amount to be paid towards loan | 8186.93*4 | 32747.72 | |
| less amount to be borrowed | 24000 | less amount to be borrowed | 30000 | |||
| less discount to be offered | 6000 | less discount to be offered | 0 | |||
| total cost of finaning | 3289.15 | total cost of finaning | 2747.72 | |||
| From the above calculation it is very clear that cost of financing is low in case of dealer two as benefits from low rate of interest is much more than the benefit of discount so it is better to go with option with dealer 2 | ||||||
| Dealer 1 Offer | Dealer 1 Offer | |||||
| cost of car | 30000 | cost of car | 30000 | |||
| less discount | 6000 | less discount | 0 | |||
| amount to be borrowed | 24000 | amount to be borrowed | 30000 | |||
| rate of interest | 1% | rate of interest | 0.30% | |||
| loan tenure | 60 | loan tenure | 48 | |||
| annual payment = Using PMT function in MS excel =pmt(rate,nper,pv,fv,type) | PMT(1%,60,24000,0,0) | ($533.87) | annual payment = Using PMT function in MS excel =pmt(rate,nper,pv,fv,type) | PMT(.3%,48,30000,0,0) | ($672.02) | |
| total amount to be paid towards loan | 533.87*60 | 32032.2 | total amount to be paid towards loan | 672.03*48 | 32257.44 | |
| less amount to be borrowed | 24000 | less amount to be borrowed | 30000 | |||
| less discount to be offered | 6000 | less discount to be offered | 0 | |||
| total cost of finaning | 2032.2 | total cost of finaning | 2257.44 | |||
| From the above calculation it is very clear that cost of financing is low in case of dealer one as benefits from discount is much more than the benefit of lower rate of interest so it is better to go with option with dealer 1. The decision changes because in option 1 borrowed amount is less than borrowed amount in option 2 and here compounding of interest is done on monthly basis so result changes |
