You are considering a car loan on a $30,000 car for 5 years with monthly car payments. Bank One quotes you an interest rate on their loan at 0.5% per month compounded monthly. Bank Two quotes you an interest rate of 6.5% compounded annually. Your payments will be monthly.
Required:
1. What are your payments for each loan?

Bank one  $579.98  

Bank two $586.70  

Explanation:

The payment in each case can be computed using the pmt formula in excel as shown below:

=pmt(rate,nper,-pv,fv)

Bank One:

rate is the monthly rate of interest at 0.5% per month

nper is the number of months the car loan would be repaid which is 5 years multiplied by 12 months i.e 60

pv is the amount of the loan which is $30,000

fv is the future worth of the loan which is not known,hence taken as zero

=pmt(0.5%,60,-30000,0)= $579.98  

Bank Two

rate is the monthly rate of interest at 0.54%  per month (6.5%/12)

nper is the number of months the car loan would be repaid which is 5 years multiplied by 12 months i.e 60

pv is the amount of the loan which is $30,000

fv is the future worth of the loan which is not known,hence taken as zero

=pmt(6.5%/12,60,-30000,0)= $586.70  

wheres the chart? so i can answer.

of the three mortgage options that demarco and tanya have to choose from, the balloon payment mortgage would be their best option, over adjustable payment and fixed payment plans.ultimately, the balloon payment plan would save demarco and tanya overall, in interest, would cost less monthly, and they would only have to make these payments for 8 years, opposing to 30 years for adjustable or fixed payment plans. 

overall, demarco and tanya would save $80,811 if they chose balloon payments over fixed payments, and would save $116,711 if they choose balloon payments over adjustable payments. benefits with choosing fixed payments over adjustable payments is that, in the end, the payments will still be $836.30 a month, while with adjustable payments, the initial monthly payments will be $763.38 to $1082.70 a month, ultimately leading to a more costly purchase. benefits with choosing fixed payments over balloon payments are not present. benefits in choosing adjustable payments over is that it has a lower interest rate, and starts with lower monthly payments initially. benefits in choosing adjustable payments over balloon payments include a lower interest rate, and lower initial monthly payments. benefits in choosing balloon payments over fixed payments include lower interest rates, lower overall price, lower monthly payments, takes less time to pay off, and does not require a downpayment. benefits in choosing balloon payments over adjustable payments include, lower monthly payments (when averaged), takes less time to pay off, and lower overall price.

hence, option c, balloon payments, is the best option for demarco and tanya to make this purchase, for it will save them a minimum of $80811, and a maximum of $116,711.