Question

The calculations have to be using Excel.

1)You are looking at five different banks offering the following rates: (make sure you show at least 2 decimal places in your answers)

Bank 1.         8% with semiannual compounding

Bank 2.        7.91% with monthly compounding

Bank 3.         7.89% with continuous compounding

a. Which bank would you borrow from and why?

b. Which bank would you invest in and why?

2)You owe $63,000 at 4.8%. You decided to pay off the loan over 10 years of monthly payments.

a. What is the size of your monthly payments?

b. What is the interest portion of your 70th payment?

c. What is the principle portion of your 50^th payment?

d. What will your outstanding balance be after 7 years?

BONUS QUESTION:

Referring to problem 1: What APR rate does bank 1 have to offer you so you would be indifferent between bank 1 and bank 2? (Use two decimal places for your rates) You can use solver or trial and error.

Answer 1

Hello Sir/ Mam

We are most delighted to answer, but I would request you to ask atmost 1 question or 4 subparts per post. Your cooperation is highly appreciated. Thanks!

To check the lowest and highest rates, we must first calculate the effective annual rates.

(a) I'll borrow from Bank 1 as I'll then incur lowest interest cost.

(b) I'll invest in Bank 3 as I'll earn the most because of highest Effective Annual Rate.

BONUS QUESTION

So as to investor/ borrower be indifferent between the rates provided by Bank 1 and Bank 2:

The said result can also be achieved using excel expression, "=(((1+(7.91%/12))^(12/2))-1)*2" to get the result 0.08042

I hope this solves your doubt.

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