You would like to take out a $200,000 loan to start a business. The bank is offering you a 5-year loan at 5.2% annual interest with quarterly payments. Note: The interest rates given here and in part 3 are annual values. Use the EAR convention for rate conversion.
1) Create a spreadsheet model with time line to calculate your payment and interest paid in each quarter.
2) Create spreadsheet models similar to the above model to explore the effect of loan amortization periods of 4, 5, and 6 years on the payment and interest paid in each quarter.
3) Cash flow will be tight when your business first gets started. Create a spreadsheet model and use Goal Seek with a 5.8% loan with quarterly payments to find out the number of quarters you should get for the loan to keep the payment no more than $10,000 (set up your goal as $4,000, $7,000 and $9,000). Round the quarter number up to the closest integer. What will be the quarterly payment for this loan?