Which What-If Analysis tool would be best at comparing how interest rates affect a monthly car payment?

Question

BlackTom AI · Accepted Answer

A One-way Table lets you vary a single input (interest rate) and immediately see its effect on a single output (monthly car payment), making it the best What-If Analysis tool for this task.

Relevant knowledge points:
- Excel What-If tools: Goal Seek (find input to reach a specific output once), Solver (optimize subject to constraints), Data Tables (one-way and two-way; show results for ranges of inputs), Pivot Table (summarize existing data).
- Monthly payment formula for an amortizing loan: Payment = r * PV / (1 - (1 + r)^-n), where r = periodic (monthly) interest rate, PV = loan principal, n = number of payments.

Step-by-step reasoning and example calculations:
1. Choose a loan example: PV = $20,000, n = 60 months. Compare annual interest rates 3%, 4%, 5%.
2. Convert annual to monthly rates:
   - 3% → r = 0.03/12 = 0.0025
   - 4% → r = 0.04/12 = 0.0033333333
   - 5% → r = 0.05/12 = 0.0041666667
3. Compute monthly payments using the formula:
   - For 3%: numerator = r*PV = 0.0025*20000 = 50. Denominator = 1 - (1.0025)^-60 ≈ 1 - 0.8607 = 0.1393. Payment ≈ 50 / 0.1393 ≈ $359.
   - For 4%: numerator = 0.0033333*20000 = 66.6667. Denominator ≈ 1 - 0.8191 = 0.1809. Payment ≈ 66.6667 / 0.1809 ≈ $369.
   - For 5%: numerator = 0.0041667*20000 = 83.3333. Denominator ≈ 1 - 0.7790 = 0.2210. Payment ≈ 83.3333 / 0.2210 ≈ $377.

Why One-way Table is correct:
- A One-way Data Table automates these calculations: list interest rates in a column, reference the payment formula cell, and Excel fills in payments for each rate. It’s designed exactly for comparing how changing one variable affects one output.

Why the other options are incorrect:
- Goal Seek finds the single interest rate that yields a desired payment (not useful for comparing many rates).
- Solver is for optimization with constraints—overkill here.
- Two-way Table varies two inputs simultaneously (interest rate plus another variable), unnecessary if only interest rate changes.
- Pivot Table summarizes existing datasets; it doesn’t perform scenario-based recalculation.

Final confirmation: The correct choice is One-way Table.

Which What-If Analysis tool would be best at comparing how interest rates affect a monthly car payment? Single choice

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