Question

please answer 3-6

Scenario: You decide to buy a used 2014 Kawasaki Ninja 300 motorcycle for $4300. You make the purchase with a credit card. Your credit card has an APR of 21.3%. You owe nothing else on this card. Questions: 1. What is the monthly interest rate? 2. How long will it take you to pay off the debt if you make payments of $100 a month? 3. How much interest will you have paid by the time you finish paying it off? 4. After owning the motorcycle for 2 years, you decide to sell it. How much do you still owe at this point? 5. If you sell it for $2900, will you be able to pay off the remaining balance? 6. Write at least one paragraph discussing the pros and cons of this scenario. Calculate the interest as simple interest each month after your payment. The following is a simplified model of actual charges: New balance = old balance - payment + monthly interest To answer these questions, set up a table in Excel such as the following: Month Old Balance Payment Old Balance Minus Payment Interest Charged New Balance

Answer 1

1	2=Prev.6	3	4=2-3	5=4*1.775%	6
Month	Old balance	Payment	Old balance Minus Pmt.	Int. Charged	New balance
0					4300
1	4300	100	4200	74.55	4274.55
2	4274.55	100.00	4174.55	74.10	4248.65
3	4248.65	100.00	4148.65	73.64	4222.29
4	4222.29	100.00	4122.29	73.17	4195.46
5	4195.46	100.00	4095.46	72.69	4168.15
6	4168.15	100.00	4068.15	72.21	4140.36
7	4140.36	100.00	4040.36	71.72	4112.08
8	4112.08	100.00	4012.08	71.21	4083.29
9	4083.29	100.00	3983.29	70.70	4054.00
10	4054.00	100.00	3954.00	70.18	4024.18
11	4024.18	100.00	3924.18	69.65	3993.83
12	3993.83	100.00	3893.83	69.12	3962.95
13	3962.95	100.00	3862.95	68.57	3931.52
14	3931.52	100.00	3831.52	68.01	3899.53
15	3899.53	100.00	3799.53	67.44	3866.97
16	3866.97	100.00	3766.97	66.86	3833.83
17	3833.83	100.00	3733.83	66.28	3800.11
18	3800.11	100.00	3700.11	65.68	3765.78
19	3765.78	100.00	3665.78	65.07	3730.85
20	3730.85	100.00	3630.85	64.45	3695.30
21	3695.30	100.00	3595.30	63.82	3659.11
22	3659.11	100.00	3559.11	63.17	3622.29
23	3622.29	100.00	3522.29	62.52	3584.81
24	3584.81	100.00	3484.81	61.86	3546.67
25	3546.67	100.00	3446.67	61.18	3507.84
26	3507.84	100.00	3407.84	60.49	3468.33
27	3468.33	100.00	3368.33	59.79	3428.12
28	3428.12	100.00	3328.12	59.07	3387.19
29	3387.19	100.00	3287.19	58.35	3345.54
30	3345.54	100.00	3245.54	57.61	3303.15
31	3303.15	100.00	3203.15	56.86	3260.01
32	3260.01	100.00	3160.01	56.09	3216.10
33	3216.10	100.00	3116.10	55.31	3171.41
34	3171.41	100.00	3071.41	54.52	3125.93
35	3125.93	100.00	3025.93	53.71	3079.64
36	3079.64	100.00	2979.64	52.89	3032.52
37	3032.52	100.00	2932.52	52.05	2984.58
38	2984.58	100.00	2884.58	51.20	2935.78
39	2935.78	100.00	2835.78	50.34	2886.11
40	2886.11	100.00	2786.11	49.45	2835.57
41	2835.57	100.00	2735.57	48.56	2784.12
42	2784.12	100.00	2684.12	47.64	2731.77
43	2731.77	100.00	2631.77	46.71	2678.48
44	2678.48	100.00	2578.48	45.77	2624.25
45	2624.25	100.00	2524.25	44.81	2569.05
46	2569.05	100.00	2469.05	43.83	2512.88
47	2512.88	100.00	2412.88	42.83	2455.71
48	2455.71	100.00	2355.71	41.81	2397.52
49	2397.52	100.00	2297.52	40.78	2338.30
50	2338.30	100.00	2238.30	39.73	2278.03
51	2278.03	100.00	2178.03	38.66	2216.69
52	2216.69	100.00	2116.69	37.57	2154.26
53	2154.26	100.00	2054.26	36.46	2090.73
54	2090.73	100.00	1990.73	35.34	2026.06
55	2026.06	100.00	1926.06	34.19	1960.25
56	1960.25	100.00	1860.25	33.02	1893.27
57	1893.27	100.00	1793.27	31.83	1825.10
58	1825.10	100.00	1725.10	30.62	1755.72
59	1755.72	100.00	1655.72	29.39	1685.11
60	1685.11	100.00	1585.11	28.14	1613.24
61	1613.24	100.00	1513.24	26.86	1540.10
62	1540.10	100.00	1440.10	25.56	1465.67
63	1465.67	100.00	1365.67	24.24	1389.91
64	1389.91	100.00	1289.91	22.90	1312.80
65	1312.80	100.00	1212.80	21.53	1234.33
66	1234.33	100.00	1134.33	20.13	1154.46
67	1154.46	100.00	1054.46	18.72	1073.18
68	1073.18	100.00	973.18	17.27	990.45
69	990.45	100.00	890.45	15.81	906.26
70	906.26	100.00	806.26	14.31	820.57
71	820.57	100.00	720.57	12.79	733.36
72	733.36	100.00	633.36	11.24	644.60
73	644.60	100.00	544.60	9.67	554.27
74	554.27	100.00	454.27	8.06	462.33
75	462.33	100.00	362.33	6.43	368.77
76	368.77	100.00	268.77	4.77	273.54
77	273.54	100.00	173.54	3.08	176.62
78	176.62	100.00	76.62	1.36	77.98
79	77.98	77.98	0.00	0.00	0.00
		7878		3578
			7878-3578=	4300.00

1.Mthly.interest rate=

APR/12=

ie. 21.3%/12=

1.775%

Reading from te EXCEL Table

2. As per the Excel table ,

it takes around (less than)

79 months to pay off the debt

3. Total interest paid=

$3,578

4. Amt. owed at end of 2 yrs.,ie.24 mths.=

3546.67

ie. $ 3547

5.NO.

$ 3547 > $ 2900

6. Pros& cons of the scenario:

Normal amortisation of loans involve,compounding of interest ,ie. Interest not only on the unpaid principal , but also on interest---

which is as illustrated below:

4300=100*(1-1.01775^-n)/0.01775

81.887 mths

It takes roughly 9 to 10 mths. More

Also interest expense is more

Total payment =81.887*100= 8189

Less: Loan principal= 4300

Interest expense= 3889

As compared to the given scenario

this scenario calculates simple interest on the pending balance & hence gets paid in shorter no.of months than the above regular amortisation of loan ,under compounding of interest.

Total payment =7878

Less: Loan principal= 4300

Interest expense= 3578

Under this scenario, we may not know, how many of the $ 100 mthly.pmt.goes towards interest& how many towards the principal--- which is possible under the amortisation method.