1. Barry borrowed a certain amount from his friend and promised to repay him, starting in 1 year from today, the amounts of $1,700, $1,400, $1,650, $1,550, and $1,250 in 1 to 5 years respectively. If the friend normally discounts investments at 7 percent per annum compounding monthly, how much did Barry borrow?

2. Narelle borrows $600,000 on a 25-year property loan at 4 percent per annum compounding monthly. The loan provides for interest-only payments for 5 years and then reverts to principal and interest repayments sufficient to repay the loan within the original 25-year period. Assume rates do not change.

a) Calculate the monthly repayment for the first 5 years. (CLUE: it is INTEREST ONLY) (2 marks)

b) Calculate the new monthly repayment after 5 years assuming the interest rate does not change. (You need the repayment required to amortise the loan to $0 in remaining 20 years) (2 marks)

c) Calculate the total repayments over the life of the loan. (2 marks)

d) Has she paid more or less than she would have if she took a principal and interest loan at the outset? Demonstrate showing your workings. (3 marks)

e) Why might she choose interest-only loan terms? (2 marks)