Loans

Assignment 6
Loans & Credit Cards

Please do the following for each individual assignment

Open a new Word document. At the top of the document enter all group members names and last names, and Assignment number.

How to save your file: Always save your work as .doc or .docx format.

Where to save your file: Always save your activity in the Group Files under your Activity Group in D2L. All work must be saved here. Additional options of saving such as email or flash drives are only back up methods and should not be used as primary modes of saving.

How to submit your activity: Once you complete your activity you need to submit it through D2L's Dropbox, under the correct dropbox for your activity. To ensure that you get evaluated and get a grade, make sure you submit before the deadline.

Deadlines are strict, no exceptions. Late submissions are not accepted. Incorrect submissions, submissions which cannot be opened due to wrong file type, or corrupt files will not be graded and will receive a grade of zero. Plagiarism receives a zero as a grade and will be reported without exception.

First some Reminders....

To use the PMT Function...
Choose the Function Wizard button then Financial in the left column and PMT in the right column. A screen will appear and you will be prompted to enter values.

Rate is the loan interest rate. (Monthly amount)
Nper is the number of payments. (Total number of payments to be made)
Pv is the amount of the loan. (No change - just the amount of the loan)
Fv is the future value of the loan and is not filled in.(Leave blank)
Type is indicating whether the payment is made at the beginning or the end of the month. Use 0 for this problem.(Just enter 0 or leave blank)

Amortization Table

Month	Beg Balance	Payment	Interest	Principal	End Balance
0
1
2

SECTION I. LOANS

You have graduated from DePaul and decide to buy a condominium in Chicago for $239,000. The one bedroom, one bathroom condo is located on St. James Place in Lincoln Park.

Prime location in Lincoln Park. Fantastic mix of vintage and modern with a newer kitchen w/ granite, stainless steel & cabinets & counterspace galore! Updated bath (w/ whirlpool), walk-in closet in master, freshly & professionally painted. Surround system thruout. Built-in bookcases in large living room. Walk to lake, train, shopping & nightlife.

a. Assuming you need a loan for $227,050 what will your payments be assuming a 30 years mortgage at 6%?

b. What is the total amount you end up paying including principal and interest?

c. For comparison purposes, you also look at a 15 year mortgage at 5.5% for 15 years. What is your monthly payment?

d. What is the total amount you end up paying including principal and interest if you decide on the 15 year mortgage?

e. Which loan is better, 30 years at 6% or 15 years at 5.5%? Explain.

SECTION II. CREDIT CARDS

Read the following article that appeared on MSN.com - 4 Journeys Back From Hell

2. Vige Barrie had $60,000 in credit card debt. Based on the article, use a balance of $60,000, a monthly payment of $1,500 (flat payment) and assume an average interest rate of 20%.

a. What is Vige's balance after 5 years? How much in interest in total did she pay after the 5 years? Paste the first 5 lines of you amortization table in your Word document.

b. Now assume that Vige pays $1,825.82 per month (flat payment), after how many months will her balance be about 12-13 cents? How much interest did she pay after 48 months? (Don't forget to delete the rows where the end balance is negative before you sum the interest column.) Paste the first 5 lines of you amortization table in your Word document.

c. Does it make sense for Vige to try and pay $1,825,82 instead of $1,500 per month? Explain.

3. Let's assume that Paul Canady decided to stop using his credit after he accumulated a balance of $2,000 on his credit card (not $15,000) and it carried an interest rate of 15%. His credit card company has also given a choice of minimum payments.

a. Minimum payment option 1 - If he pays a minimum payment of 2% per month (not less than $25), what is his balance after 5 years? What is the amount of interest he paid to date? About how long will it take him to pay off his credit card if he continues to pay the minimum payment? Paste the first 5 lines of you amortization table in your Word document.

b. Minimum payment option 2 - If he pays a minimum payment of 3% per month (not less than $25), what is his balance after 5 years? What is the amount of interest he paid to date? About how long will it take him to pay off his credit card if he continues to pay the minimum payment? Paste the first 5 lines of you amortization table in your Word document.

c. Is there a big difference minimum payment option 1 and minimum payment option 2? Which one should Paul choose? Explain.

4. Let's assume that Susan had $9,000 in credit card debt (out of the total amount of debt of $100,000). After 12 years, the article states that she is free of credit card debt. Using the PMT function, determine her monthly payment assuming she made equal payments for 12 years. Also assume that her credit card had an annual percentage rate of 10%. What amount did she pay monthly to pay off her credit card in 12 years? Paste the first 5 lines of you amortization table in your Word document.

5. You are interested in buying a new home that costs $280,000. The mortgage company requires a down payment of 15% of the cost of the home. You will borrow the rest. The mortgage company offers you 2 options. Option 1 is a 15 year loan with an APR of 6.75% and option 2 is a 30 year loan with an APR of 5.55%.

a. For each option, find the monthly mortgage payment, the total amount paid back and the total amount of interest paid. Write these in your Word document.

b. Which option would you choose and why?