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Quantitative Methods for Business Economics and Finance

Excel Practice Questions I

QUESTION 1:

Assume that a firm offers its employees a mortgage facility whereby the employee can borrow money to purchase a house. It currently has a honeymoon rate of 5% per annum, compounded monthly that is fixed for the first year but reverts back to their standard nominal rate of interest after that at 6.5% per annum, compounded monthly. One individual has borrowed $200,000. The loan (and interest) is to be repaid over the next 15 years. (Assume that the standard rate of interest remains unchanged for the term of the loan)

A. Firstly prepare the loan repayment schedule, but ignore the honeymoon rate for now -use the standard nominal rate for the whole term of the loan

1.	Calculate and then use the monthly repayment P that pays out the loan in 15 years.	P= $1742.21
2.	How much interest is paid (in dollars/cents) in the first month?	$1083.34
3.	What is the principal remaining (loan balance) after 12 months?	$191853.57
4.	What is the sum of all the repayments?	$313598.65

B. Now redo the loan repayment schedule, using the honeymoon rate as offered (for the honeymoon period only) and the standard nominal rate after that – but still use the same monthly repayment amount, P, that you calculated in part (A), for the total duration of the loan.

1.	How much interest is paid (in dollars/cents) in the first month?	$833.33
	and in the thirteenth month?	$1022.88
2.	What is the principal remaining (loan balance) after 12 months?	$188839.98
. Adjust the last payment (which will be less than P) accordingly, so that the principal remaining is zero.
3. What will be the last payment?		$1308.99
4.	In what month is the last payment made	176
5.	How much interest is paid in total?	$106196.57

QUESTION 2: (2-4 Marks)

Consider two investment projects (A and B) given below and the interest rate is given at 12% per annum. Calculate the Net present value (NPV) and the internal rate of return (IRR) for these two projects.