1

You have a line of credit loan with the Bank of Montreal. The initial loan balance was $7000.00. Payments of $3000.00 and $2500.00 were made after four months and ten months respectively. At the end of one year, you borrowed an additional $4250.00. Seven months later, the line of credit loan was converted into a collateral mortgage loan. The line of credit interest was 8.52% compounded monthly. To repay the loan you discounted your 11-year $8000.00 promissory note, with interest at 8.4% compounded monthly, at 6.5% compounded semi-annually and you got proceeds of $14 631.15.

(a) How much is mortgage loan?

(b) How many months before the due date you discounted the promissory note?

Open ended question: Would you be able to repay the loan by discounting the promissory note? If yes, how much amount you will be left with?

2

(a) Luciano sold a property and is to receive $14 200.00 in nine months, $14 000.00 in 42 months, and $15 500.00 in 57 months. The deal was renegotiated after six months at which time Luciano received a payment of $17 000.00; he was to receive a further payment of $19 000.00 later. When should Luciano receive the second payment if money is worth 10% compounded quarterly?

(b) The accountant of Crystal Credit Union proposes changing the method of compounding interest on premium savings accounts to yearly compounding. If the current rate is 8% compounded quarterly, what nominal rate should the treasurer suggest to the Board of Directors to maintain the same effective rate of interest?