Problem based Question
The Problem
Jack has decided to purchase a new car for $60,000. After a down payment of 30%, he will finance the remainder with a car loan. He has the option to get the car loan from 2 banks:
Bank A offers a loan at an annual percentage interest rate of 3.5% simple interest for 10 years and this simple interest would be calculated for 10 years and added to the principal.
Bank B provides a loan with equal regular monthly payments and interest would be calculated on the unpaid balance after each payment. The annual percentage interest rate is 4.5% for 10 years.
For example, if the loan from Bank B is paid off in 10 years, then the loan payment for the first 12 months is shown at the loan repayment table below.
The Questions
1)What do you need to find out? What mathematical model do you need?
2)State, with reason, which bank should Jack choose to take up the car loan?(Show the workings for finding the total payments for Bank A and Bank B)
3)Jack decided to take up the loan from Bank B. However, instead of 10 years,he intends to pay up the loan in 6 years. The annual percentage interest rate remains at 4.5%.Determine the monthly payments, total payment and total interest Jack would pay on the 6year loan.
4)Use any suitable software to perform the required calculations .
5)If the monthly payment for the car loan from Bank B is $800, how long it takes for Jack to pay up the loan?
6)Construct a loan repayment table for the loan payment of Bank B if the loan is paid off in 10 years. You only need to show the loan payment for the LAST 12 months. The currency should round up to the nearest dollars. The loan repayment table should be of the below format:
Month
Principal
Amount of monthly interest on unpaid balance
Regular monthly payment
Amount of payment of principle
New Principal
