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Finance Homework : Loan with Ballon Payment?

You wish to acquire a new car. The car will cost $30,000. You can borrow the money to buy the car from the bank. The bank will charge you 6% compounded semi-annually. The loan will be for 5 years. Payments on the loan will be made at the end of each month. As an alternative you could lease the car. The leasing company will charge 8% compounded semi-annually. The lease will be for 5 years. At the end of the lease there is a balloon payment of $15,000. The monthly payments on the lease will be made at the beginning of the month. a) Draw a detailed timeline and label each component of the timeline clearly for both the car loan and the lease. b) Calculate the amount of the monthly loan payment. c) Calculate the amount of the monthly lease payment. I have completed the monthly loan payment portion, but I am struggling with the monthly lease payment. The ballon payment at the end of the 5 years will impact the monthly payment I think. And I dont know how to account for that.

Public Comments

1. Assuming you're using a financial calculator: first convert your semi-annual interest rate to an annual rate and then re-convert to a monthly compounded rate. Use this result as the I%YR below. PV = -30 000 FV = 15 000 I%YR = XX% (converted rate) N = 60 solve for PMT Time Value of Money concepts and calculations are explained here: http://www.getobjects.com/Components/components.html#tvm