Upon Graduation, Steven purchases a new home theater system for his apartment. T

Question

Upon Graduation, Steven purchases a new home theater system for his apartment. To finance the system, he "borrows"$5,000 from a new credit card at 21 percent per year compounded monthly. He fully intends to pay off the "loan" in 1 year while making monthly payments. Develop an Excel table to illustrate the payment amounts and schedule for the loan, assuming payback follows. a) Plan 1: Pay the accumulated interest at the end of each interest period and repay the principal at the end of the loan period. b) Plan 2: Make equal principal payments, plus interest on the unpaid balance at the end of the period. c) Plan 3: Make equal end-of-period payments. d) Plan 4: Make a single payment of principal and interest at the end of the loan period. e) A different plan: Pay $X in principal at the end of months 1, 2 and 3; pay $2X at the end of months 4, 5 and 6; then $3X at 7, 8 9; and finally $4X at 10, 11, 12. In addition, pay the accumulated interest at the end of each interest period.

Explanation / Answer

a) Plan 1: Pay the accumulated interest at the end of each interest period and repay the principal at the end of the loan period.

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