Quantitative methods for business ONLY 1 Question!

EXCEL Instructions: Refer to the amortisation example in Week 3 lecture notes and the corresponding EXCEL spreadsheet, which you can use to help you create the amortization schedule for this question. Be sure to add your initials to all column names. You need to use formulas, do not simply type in values! Therefore you need to show the formulas in your spreadsheet.

(c) (2 marks) Use your amortisation schedule from part (b) to calculate the total interest and the total amount paid over the life of the loan.

The bank has also offered Joey a two-year interest-only option with her ten-year loan. This means that for the first two-years, every quarter Joey would pay only interest on the amount borrowed. Loan repayments consisting of both interest and principal would then commence in year three and continue for eight years.

(d) (2 marks) Calculate the quarterly repayment that Joey would have to make starting in year three, assuming 8-year amortisation.

If you wish, use EXCEL to calculate the quarterly repayment. EXCEL Instructions: Refer to Topic 4 in the EXCEL booklet for instructions on how to use financial functions to make annuity calculations.

(e) (8 marks) Use EXCEL to set up an Amortisation Schedule for the loan with the two-year interest-only option. Include your completed and notated amortisation schedule here.

EXCEL Instructions: Start with the amortisation schedule from part (b) and modify it appropriately to account for the interest-only period. Be sure to add your initials to all column names. You need to use formulas, do not simply type in values! Therefore you need to show the formulas in your spreadsheet.

(f) (2 marks) Use your amortisation schedule from part (e) to calculate the total interest and the total amount paid on the loan with the two-year interest-only option.

Which option should Joey Wombat take? As part of your response you must explain why the option you select is the better of the two alternatives.