Question
1. You borrow $80,000 from the bank to invest in your business. You plan to repay the loan through weekly payments of $500, with the
1. You borrow $80,000 from the bank to invest in your business. You plan to repay the loan through weekly payments of $500, with the first payment occurring one week after you receive the funds from the bank, and the final payment possibly being a partial payment. The bank charges interest at a rate of j52 = 3.75% p.a.
- Determine how long it will take you to repay the loan. Describe and apply a sanity check for the duration of the loan.
- Determine the size of the final (partial) payment.
- Construct an amortization table showing the last six payments, that is, five full payments and a partial payment. Ensure that you show how you got your starting value for the table. Describe and apply a sanity check to your table.
- Immediately after your 8th payment, the interest rate increases to j52 = 3.90% p.a. Assuming that you maintain the same weekly payments of $500, determine how long does it takes you to retire your debt and the size of the final (partial) payment.
2. You are opening a savings account which pays fortnightly interest at a rate of j26 = 2.3% p.a. You wish to save $55,000 for a mortgage deposit by depositing the same amount into the account at the end of each month, for 2.5 years, starting in a months time.
- Determine the required size for the fortnightly deposit, R. Apply a sanity check.
- Construct a sinking fund table for the last five deposits. (Ensure that you show how you obtained your starting value for the table.) Describe and apply a sanity check to your table.
- Suppose that immediately after your 25th deposit, the interest rate rises to j26 = 2.6% p.a. Determine the size of the deposits you must make in fortnight 25 an onwards in order to still make your target of $55,000.
- With the new interest rate j26 = 2.6% p.a, construct a new sinking fund table for the last five deposits. (Ensure that you show how you obtained your starting value for the table.) Describe and apply a sanity check to your table.
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