This question is one of several considered in the book Financial Problems in Excel, which is available on Kindle.
http://www.amazon.com/SolvingFinancialProblemsExcelBernsteinebook/dp/B019VQ333Y
Question Three: Consider two people one with good credit and one with bad credit. Each person has a car loan, a 30year FRM, and a personal student loan. The date of origination of each loan, the term of each loan, and the interest rate on each loan for the two people are presented in the table below. What was the interest paid on these loans for the two people in 2014?
Loan information for Two
People


Bad Credit Rate

Good Credit Rate

Term of Loan in Years

Loan Origination Date

Initial Loan Balance


Car Loan

0.11

0.04

6

1/1/13

$15,000

Personal Student Loan
Rate

0.12

0.06

20

1/1/10

$45,000

Mortgage Rate

0.055

0.0325

30

6/1/13

$320,000

Answer: I will use the IPMT function to get the
monthly loan information for each loan and each month in 2014. The
input variables for the IPMT function are 1) RATE (monthly interest rate), 2)
PER (age of the loan in each month), 3) NPER (the term of the loan), and 4) PV
(the loan balance.)
The monthly interest rate is simply the annual rate divided
by 12.
The term of each loan and the initial loan balance for each
loan is given in the chart.
The age of the loan on January 1 2014 and on subsequent
dates can be obtained by counting from the loan origination date. January 2014 is the 13^{th} month of
the car loan, the 49^{th} month for the personal student loan, and the
7^{th} month for the mortgage.
The three charts below give monthly and 2014 total interest
payment calculations from the car loan, the personal student loan, and the
mortgage for the person with bad and good credit.
·
The person with bad credit pays a total of
$22,462 in interest in 2014, ($1,342 on the car loan, $3,748 for the student
loan, and $17,373 on the mortgage.)
·
The person with good credit pays a total of
$12,358 in interest in 2014 ($467 on the car loan, $1,691 on the student loan,
and $10,200 on the mortgage.)
Car Loan Assumptions


Bad Credit

Good Credit


Rate

0.11

0.04

Term

72

72

Loan Balance

$15,000

$15,000

Car Loan 2014 Interest
Payments


13

$120.37

$42.48

14

$118.86

$41.84

15

$117.33

$41.19

16

$115.79

$40.55

17

$114.23

$39.90

18

$112.66

$39.25

19

$111.08

$38.60

20

$109.48

$37.95

21

$107.87

$37.29

22

$106.24

$36.63

23

$104.59

$35.97

24

$102.94

$35.31

Total

$1,341.44

$466.95

Personal Student Loan
Assumptions


Bad Credit

Good Credit


Rate

0.12

0.06

Term

120

120

Loan Balance

$45,000

$45,000

Personal Student Loan
Interest Payments 2014


49

$330.24

$150.73

50

$327.08

$148.98

51

$323.90

$147.23

52

$320.68

$145.47

53

$317.43

$143.70

54

$314.15

$141.92

55

$310.83

$140.13

56

$307.49

$138.33

57

$304.11

$136.52

58

$300.69

$134.71

59

$297.24

$132.88

60

$293.76

$131.05

Total

$3,747.59

$1,691.64

Mortgage Rate Assumptions


Bad Credit

Good Credit


Rate

0.055

0.0325

Term

360

360

Loan Balance

$320,000

$320,000

Mortgage Interest
Payments in 2014


7

$1,456.92

$858.06

8

$1,455.27

$856.61

9

$1,453.62

$855.16

10

$1,451.95

$853.71

11

$1,450.28

$852.25

12

$1,448.60

$850.78

13

$1,446.91

$849.31

14

$1,445.21

$847.84

15

$1,443.51

$846.37

16

$1,441.80

$844.89

17

$1,440.08

$843.40

18

$1,438.35

$841.92

Total

$17,372.50

$10,200.31

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