As a small software developer firm, you have approached the AXZ Bank to obtain a term loan so that the firm can purchase a new server

1-a). We can calculate the monthly loan installments for offer 1 by using the following formula in excel:-

=pmt(rate,nper,-pv,fv)

Here,

Pmt = Monthly loan installments

Rate = 7.65%/12 = 0.6375% (monthly)

Nper = 5*12 = 60 periods (monthly)

PV = $100,000

FV = $0

Substituting the values in formula:

= pmt(0.6375%,60,-100000,0)

= $2,010.93

1-b). We can calculate the monthly loan installments for offer 2 by using the following formula in excel:-

=pmt(rate,nper,-pv,fv)

Here,

Pmt = Monthly loan installments

Rate = 5.5%/12 = 0.4583% (monthly)

Nper = 3*12 = 36 periods (monthly)

PV = $100,000

FV = $0

Substituting the values in formula:

= pmt(0.4583%,36,-100000,0)

= $3,019.59

2-a). Computation of the total interest payments for offer 1:-

Total interest paid = (Monthly loan installments * Number of months) - Principal

= ($2,010.93 * 60) - $100,000

= $120,655.83 - $100,000

= $20,655.83

b). Computation of the total interest payments for offer 2:-

Total interest paid = (Monthly loan installments * Number of months) - Principal

= ($3,019.59 * 36) - $100,000

= $108,705.25 - $100,000

= $8,705.25