You friend has decided to buy a car that cost $15,000, three banks offered to you loans all of them will give $15,000 by four year loan at (APR) 6%. However they are different in the type of loan and the way interest is compounded,

1. The first bank, offered to you amortizing loan in which the interest is compounded monthly, and payment is made in monthly basis

2. The second bank, offered to you amortizing loan in which the interest is compounded quarterly , and payment is made in quarterly basis

3. The third bank, offered to younon amortizingloan in which the interest is compounded daily basis , and payment is made in yearly basis.

 

Questions , 
1. Calculate the required payments amounts for each offer ? ( including the periodic interest rate each loan and the full equation used to compute the required payment .( a year is 365 days, and present your result with two decimals)
2. what is the total amount of interest that would have to be paid at the end of loan (for each loan)?
3. What is the EAR for each loan?
4. For each loan, provide the cash flows for each period, showing the required payment, amount of interest paid, amount of principal paid and the remaining principal balance. You are required to complete this using Excel.
5. You have a friend that has been helping with the purchase of the auto, but does not understand why the loans are producing different results. Provide an explanation to your friend that outlines why the payment differ, why the total amount of interest paid differs and why the EAR of each loan differs from the stated APR.

Answers

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