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Finance: LoansOpen the Excel file that has the loans payment calculator to answer the first question. The payment calculator is the first sheet in the workbook.Suppose you purchase a home for $150,000. The lender requires 20% down plus 1 point due at closing. The loan is a 4% fixed-rate mortgage over 30 years. In addition, other closing cost fees total about $4,000. Find the total closing costs, monthly payment, and how much you paid total for the home. How much interest will you pay over the life of the loan, assuming no extra payments were made? Students use the given payment calculator in the Excel file for loans and amortization to determine the monthly payment.Create an amortization schedule for the loan for the first 5 months. Discuss how the portion of the payment made up of interest changes over the life of the loan. We will be creating an amortization table in great detail with an Excel activity next. Discuss how quantities are computed. For example, the interest payment uses the monthly rate, not the yearly rate. PeriodStarting BalanceInterest Payment Principal PaymentRemaining BalanceAccumulated Interest0120,0000.000.00120,0000.0012345Notice the sum of these columns is always the same (your monthly payment)Now return to the Excel file with the Payment Calculator and Amortization Activity. Use the sheet provided for the Excel activity to plan your Excel formulas and create a working amortization table. Students use the planning sheet for the amortization activity.You are going to purchase a home for $200,000. You will put 20% down on this home. Identify the amount you will have to borrow.A bank (or credit union) advertises a 30-year fixed mortgage at 3.4% APR and a 15-year fixed mortgage at 2.7% APR. Use those numbers to fill in the table below.15-year FRM at 2.7%30-year FRM at 3.4%Monthly paymentUse payment calculator on amortization table.Total interest over the life of the loan (assuming no extra payments)This is a simple calculation, although the table could technically be used. What are the obvious advantages and disadvantages of each loan? Discussion: What are several things you might think about before purchasing a home? Suppose that you have taken out subsidized Stafford loans totaling $20,000 over your four years in college. Your rate is a fixed 3.86% and you will repay using a standard 10-year repayment plan. Find your after-graduation monthly payment and explain why your principal is still $20,000 (as opposed to $20,000 plus accrued interest) when you graduate, assuming you haven’t paid anything toward the principal of the loan during school. Use the Excel file payment calculator.Suppose that you have taken out unsubsidized Stafford loans totaling $45,000 (you can do this if you’re an independent) for your four years in college. Your loans were: $9500 the first year, $10,500 the second year, and $12,500 for the third year and again for the fourth year. Your rate is a fixed 3.86% (suppose it stays that way for each new loan you take out for simplicity, although the rate on each new loan can be different) and you will repay using a standard ten-year repayment plan. What is an unsubsidized loan? Who is responsible for the interest while you are in school? Suppose that you do not pay any interest payments while in school. This means that when you graduate the interest that accrued while you were in school is added to your principal, i.e. it is “capitalized.” Let’s first find the interest that has accrued over the four years. For capitalization purposes, the interest on these loans is computed using simple interest. Loan AmountNumber years interest is accruingRate Total interest accrued upon graduation$9500$10,500$12,500$12,500TotalUsing the table, what is your principal upon graduation?_____________Compute your monthly payment and total interest paid assuming you are on a standard ten-year repayment plan. Use Excel payment calculator.Now suppose that you had made interest payments throughout your college career so that your principal is $45,000 upon graduation. Find the monthly payment and total interest paid assuming you are on a standard ten-year repayment plan. How much less interest would you pay? Use the Excel payment calculator.You can afford $250 loan payments for a car with an auto loan at 2% interest for 60 months. How expensive of a car can you afford? Students use the payment calculator to experiment with the loan amount until the payments are approximately $250.You can afford $850 loan payments for a home with a mortgage at 3.5% for 30 years. How expensive of a house can you afford? (Keep in mind we’re neglecting other costs in addition to the loan payment for simplicity.) Students use the payment calculator to experiment with the loan amount until the payments are approximately $250.Suppose you purchase a home with a $220,000 mortgage at 4% for 30 years. What will be the remaining home balance after 10 years (assuming you haven’t paid extra)? How much interest have you paid after 10 years? After 30 years? Students use the amortization table to find the remaining home balance and accumulated interest after 10 years (120 periods). Decreasing interest paid and payoff time: Suppose that you make a payment toward the principal of $3000 dollars at the end of the third year. How much interest does this one payment save? How much time does this save to pay off the loan? (Note: making at least one extra payment will decrease your payoff time. This means you will have to find the period in the table with the last positive remaining balance.) Students enter the payment into the extra payment for the 36th period. They then find the resulting accumulated interest and subtract this from their answer in part (a) for the interest that accrued after 30 years. Decreasing interest paid and payoff time: Suppose that every payment period you pay $10 extra toward the principal. How much interest do these payments save? How much time does this save to pay off the loan? (Note: making at least one extra payment will decrease your payoff time. This means you will have to find the period in the table with the last positive remaining balance.) Students can enter 10.00 into the extra payment column and pull it down for the length of the loan. Then subtract the resulting accumulated interest from the answer in part (a) for the interest that accrued after 30 years. Recall from the simple and compound interest that annual percentage yield (APY) is slightly higher than the annual percentage rate (APR). This is of course true with installment loans as well. Given this information, would a bank be more likely to emphasize the APY of a loan or the APR of a loan? ................
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