Basic HTML Version
Q
uantitative
R
easoning &
P
roblem
S
olving
378
© 2014 Pacific Crest
O
ops
! A
voiding
C
ommon
E
rrors
●
Forgetting that Excel requires negative numbers for money you pay out
Example
: In the methodology in this activity, if the total cost of the car were entered as the sum
of all the 60 payments plus the amount of the down payment:
[=PMT(0.0075,60,20000)*60 + 2000]
Excel gives the result $22,910, which is less than the total amount of the monthly
payments.
Why?
To add the down payment to the total of the monthly payments, Excel requires a
–2000 (not +2000) because it is money that you paid out.
●
Being careless with the order of the arguments in Excel
Example
: =PMT(20000,.0075,60) gives an outrageously wrong answer that your monthly
payment will be $16,763,270.19!
Why?
The order of the arguments is critical, and Excel explains what they have to be for
each function. For PMT, the first argument must be the interest rate per period, the
second is the number of periods, and finally, the amount of the loan.
A
re You Ready?
Before continuing, you should be able to ...
I can...
OR
Here’s my question...
use an algebraic formula to calculate the
monthly payments on a loan
use an Excel formula to calculate the
monthly payments on a loan
calculate the cost of credit (total interest)
on a loan
list three things I can do to improve my
credit score
P
lan
How to complete the activity
1. Work through the model.
2. Read and answer the Critical Thinking Questions.
3. Complete Model 2 in teams.
a. Decide what you want to buy (group decision or each person chooses his/her own purchases).
b. Use appropriate formulas to calculate and validate the results.
4. Complete the remainder of this activity (from Demonstrate Your Understanding through Assessing
Your Performance) on your own, or as directed by your instructor.