Question

As a small software developer firm, you have approached the AXZ Bank to obtain a term loan so that the firm can purchase a new server. The AXZ bank provides two (2) offers to your company, as listed below: a) a loan of $100,000 over a five (5) year period at an interest rate of 7.65% per annum (per year) payable at the end of each month. b) a loan of $100, 000 over a three (3) year period at an interest rate of 5.5% per annum (per year) payable at the end of each month.

Requirements

1. Calculate the monthly loan instalments for each offer listed above – a) and b)

. 2. Calculate the total interest payments for each offer listed above – a) and b). (Note – Students must clearly provide all workings and calculations in their response)

Answer 1

1)
a.
Principal	$ 100,000.00
Rate = 7.65%/12	0.64%
nper = 5 x 12	60
FV	0
Type	0
Monthly l Payment = PMT	$2,010.93
b.
Principal	$ 100,000.00
Rate = 5.50%/12	0.46%
nper = 3 x 12	36
FV	0
Type	0
Annual Payment = PMT	$3,019.59
2)
a)
Total Payments  = 2010.93 x 60	$120,655.83
Less: Principal	$100,000.00
Total Interest	$20,655.83
b)
Total Payments  = 3,019.59 x 36	$108,705.25
Less: Principal	$100,000.00
Total Interest	$8,705.25