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Question: You have borrowed $450,000 to buy a house. The loan officer offers you three options:

A) 10-year fixed rate loan, with an annual rate of 4% and with fixed monthly installments

B) 10-year fixed rate loan, with an annual rate of 5%, fixed monthly installments and a one-time (balloon) payment of $50,000 at the end of the loan.

C) 30-year fixed rate loan, with an annual rate of 6% and fixed monthly installments

1. Create an Excel spreadsheet and calculate how your interest payments, principal payments, and the outstanding loan balance changes over time for each of these options (20 points) (You do NOT need to print the entire excel sheet; just few cells from the beginning and end would be enough. However, you should explain your approach.)

2. Suppose you stop re-paying your loan at the end of the fifth year. What fraction of the original loan has been paid by then? (3. Plot an Excel graph showing the share of principal re-payment and interest payment from your fixed monthly payments, as a function of time (for all three options)

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Basic Finance, Finance

Category:- Basic Finance
Reference No.:- M92786000

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