Earl purchased a house for $380,000 by paying 20% of the amount as a down payment and he received a 25-year mortgage for the balance. The interest rate was fixed at 4.5% compounded semi-annually for a term of five years and he was allowed to make prepayments of up to 20% of the original principal every year without any penalty.

a. What is the size of the monthly payment?

b. What is the principal balance at the end of the five-year term?

c. By how much did the amortization period shorten if he made a lump-sum payment of $40,000, in addition to the monthly payment, at the end of the five-year term of the mortgage?

AppendixLO1