C268 Practice Exam Questions and Answers (Complete Solution) Amortization

Scenario: You have decided to purchase a new car. You plan to take out a loan to pay for the car. The loan amount is $18,900. You will pay an interest rate of 6.5% and plan to pay off the car in 48 months. You want to calculate the total amount of money and the total amount of interest you will pay over the course of the loan. To help you with these calculations, you decide to construct an amortization table. An amortization table provides details about the payment, interest amount, principal amount, and loan balance for every month of the loan. Perform the tasks below to complete the amortization table and loan summary calculations. 1. Calculate the payment amount for the loan in cell C15. Reference the cells containing the appropriate loan information as the arguments for the function you use. Cells C20–C67 in the "Payment" column are populated with the payment amount from cell C15. =PMT(C13/12,C12,C11) 2. Calculate, in cell D20, the interest amount for period 1 by multiplying the balance in period 0 (cell F19) by the loan interest rate (cell C13) divided by 12. Dividing the interest rate by 12 results in the monthly interest rate. This formula is reusable. The interest for a given period is always the monthly interest rate times the balance from the previous period. =F19*0.65/12 3. Copy the interest amount calculation down to complete the "Interest" column of the amortization table. Ctrl + c then double click the bottom right corner 4. Calculate, in cell E20, the principal amount for period 1. The principal amount is the difference between the payment amount (cell C20) and the interest amount (cell D20) for period 1. Construct your formula in such a way that it can be reused to complete the "principal" column of the amortization table. =C20-D20 5. Copy the principal amount calculation down to complete the "principal" column of the amortization table. Ctrl + c then double click the bottom right corner 6. Calculate, in cell F20, the balance for period 1. The balance is the difference between the balance for period 0 (cell F19) and the principal amount for period 1 (cell E20). This formula is reusable. The balance is always calculated as the difference between the balance from the previous period and the principal amount for the current period. =F19-E20:E20 7. Copy the balance amount calculation down to complete the "Balance" column of the amortization table. Ctrl + c then double click the bottom right corner 8. Calculate, in cell G12, the total amount paid by multiplying the payment amount (cell C15) by the term of the loan (cell C12). =C15*C12 9. Calculate the total interest paid in cell G13. The total interest paid is the sum of all interest paid in the "Interest" column of the amortization table. =SUM(D20:D67) 10. Check to see if the total interest calculation in the amortization table is correct. The total interest paid is also equal to the difference between the total amount paid over the course of the loan and the original loan amount. Insert a formula into cell G14 to calculate the difference between the total amount paid and the original loan amount. Notice the negative sign associated with the original loan amount. This value should equal the total interest calculated using the amortization table =G12+C11 11. Assume you have made the first 36 payments on your loan. You want to trade the car in for a new car. You believe that you can sell your car for $4000. Will this cover the balance remaining on the car in period 36? Answer either "Yes" or "No" in cell G15 from the drop-down menu. Yes