Goals:
To use an existing spreadsheet to calculate loan payments and interest when borrowing money.
To achieve a better understanding of compound interest when borrowing money.
Introduction:
We all need to borrow money every now and then. And the price we pay to do this is called interest. Car loans, stereo loans, school loans, home loans --- the list goes on and on. When we pay back loans on a payment schedule, it is called amortization. You will have an opportunity to use an existing amortization spread sheet to calculate a wide scenerio of loans, and study the impact of borrowing money. This spread sheet was actually designed by a Sprague student many years ago, and is still being used in several local businesses.
Procedure:
Be sure you have downloaded the "amort2000.xls" spreadsheet template.
Click here amort2003 to receive the amortization spread sheet needed for this activity. Save it in your thawspace. It will be available from files to copy too.
Once you have the spreadsheet, please open Word and copy/paste the following questions, and answer them accordingly . All answers can be derived from the Amort spreadsheet.
Save the document as: last first amort.doc
Problem #1 The Car Purchase Problem
- We wish to purchase a 'used vehicle' for $8000.
- We put $1000 down, so need to borrow $7000.
- The agreed interest rate is 15.5%
- Let's agree to repay the loan over 2 1/2 years.
- Use amort2003.xls to find:
A. How much is the monthly payment?
B. How much is the total interest?
C. What is the total cost of the car? (Don't forget the down payment!)
D. How much is the interest in the first month?
E. How much is the interest in the last month?
Problem #2 Re-do Problem #1
- Make the interest rate 12%
- Pay it back in 1 1/2 years
A. How much is the monthly payment?
B. How much is total interest?
C.What is the total cost of the car? (Don't forget the down payment!)
D. How much is the interest in the first month?
E. How much is the interest in the last month?
Problem #3 The Home Purchase Problem
- We wish to purchase a home for $75,000, and will put $5000 down
- Thus, we will need to borrow $ _______
- The interest rate is 7 3/4%
- The length of time is 30 yrs (which is typical)
A. What is the monthly payment?
B. How much is paid back in total INTEREST?
C. What is the total cost of the house?
D. How much goes towards INTEREST the first month?
E. How much goes towards PRINCIPAL the first month?
F. How much goes towards INTEREST the last month?
G. How much goes towards PRINCIPAL the last month?
Problem #4 Re-do #3
- Now, let's do the SAME loan as #3
- Change the time to only 15 years.
- Erase the chart first !!!!!
A. What is your monthly payment?
B. How much is paid back in total INTEREST?
C. What is the total cost of the house?
Problem #5 Comparing the 15 and 30 Year Loans...
A. How much more is the 15 year vs the 30 year monthly payment?
B. How much is SAVED in total interest for 15 years vs 30 yrs?
C. What could you do with the money saved ??
