Project 2:  Loan Analysis

30 points

Due at the beginning of class, Monday, April 6, 2009

In today's bad economic times, we have been hearing a lot about the "sub-prime" mortgage crisis  that began a couple of years ago and played a large part in the general financial crisis in the U.S. and throughout the world.  In this project, you are to write at least two paragraphs on the problems with the "sub-prime" mortgage crisis (not the overall financial crisis) .  Your write-up should include, but is not limited to, the following items:  a description of the mortgage crisis, its causes, and how it affected the housing market and homeowners.  Additionally, you should include a short discussion of the recent (this past Monday!) actions of the Obama administration to buy up the so-called "toxic assets" from banks.  You should cite two different web sites as part of your research, and these sites should be reputable and trustworthy. 

Next, you should find an advertisement of something you would like to purchase (house, car, boat, etc.) that costs more than $5000.  Include a valid link, screen capture, or scanned image of the advertisement in your write-up.  You should also give a brief explanation as to why you chose this particular item.  Then find at least two different loan options for purchasing this item.  Just as you did for the advertisement, you should include a valid link, screen capture, or scanned image of each loan offer.  The loan offers should be sufficiently different -- for example, variations can be in loan duration, interest rate, amount of down payment required, and points (or other closing costs).

Then, for each of the two loan offers you found above, perform an analysis of the payment plan.  First, find the monthly payment.  [It is acceptable to use a loan calculator (common on many web sites), but if you do, you also need to confirm the monthly payment it calculates by using the payment formula in Topic 9 in the text.]  Next, develop the payment schedule (using Excel) for the first twelve months of your loan. (The payment schedule should be similar to the one found on page 161 of your book, and you should recall Activity 9.1 as you complete this part of the project.  Include a copy of the Excel spreadsheet for only the first twelve months in your write-up -- I don't want to see 30 years of payments!)  Then, compute the total interest paid (for the entire loan duration) for each plan.  Compare these characteristics of the two loans.

When I grade your paper, I will be looking for the following things:

• Inclusion of a title.
• An introductory paragraph that describes the purpose of the paper and why it is of interest.
• A coherent write-up, with transitions between different elements.
• A concluding paragraph which summarizes the main ideas of the write-up.
• Presentation (as usual, you should use Word) including labeled figures, tables, spelling, and punctuation.
• Quality and appropriateness of graphs (if applicable).
• Clarity, quality, and depth of written descriptions and explanations.
• Choice of supporting data or articles from the web.
• Appropriateness of chosen loan options.