Question
(1) You have been asked to prepare an amortisation schedule for a five-year loan of $150,000 with monthly repayments. The interest rate is 7.50% per
(1) You have been asked to prepare an amortisation schedule for a five-year loan of $150,000 with monthly repayments. The interest rate is 7.50% per year, to be compounded monthly, and the loan calls for equal monthly payments. What is the periodic monthly payment? How much interest is paid in the first month of payment? What is the principal repayment for the first month of payment?
Monthly payment = $3,005.69; first month of interest = $924.57; first month of principal repayment = $2081.12.
None of the answer provided is correct.
Monthly payment = $2,500; first month of interest = $1,250; first month of principal repayment = $1,250.
Monthly payment = $3,005.69; first month of interest = $937.50; first month of principal repayment = $2,068.19.
Monthly payment = $2,500; first month of interest = $937.50; first month of principal repayment = $1,562.50.
(2)Your small business has just bought a new shop. To finance the purchase, you have arranged for a 15-year mortgage loan for 80% of the $1,200,000 purchase price. The monthly payment on this loan will be $8,628.75. What is the APR (annual percentage rate) on this loan? What is the EAR (effective annual rate)?
APR=7.83%; EAR=8.12%
More information is needed to answer this question
APR=20%; EAR=21.98%
APR=7.00%; EAR=7.23%
APR=0.58%; EAR=7.00%
(3) You have just taken on a 30-year, 7.25% p.a. (to be compounded monthly), $750,000 mortgage and would like to pay it off in 15 years. By how much will your monthly payment have to change to accomplish this objective of paying it off in 15 years? [Assume there is no penalty for this change.]
Decrease by $6,846.47 monthly.
Increase by $5,116.32 monthly.
Increase by $1,730.15 monthly.
Increase by $6,846.47 monthly.
Decrease by $1,730.15 monthly.
(4) Renew Energy Ltd is trying to determine which one of two projects it should accept. Project 1 is estimated to generate annual cash flows of $61,000 a year for six years. Project 2 is estimated to generate annual cash flows $48,000 a year for eight years. Both projects have the same start-up costs. The company requires a 11% return. Which project should the company select and why?
Project 2; because the present value of the cash inflows exceeds those of Project 1 by $29,820.75.
The company is indifferent since both projects generate same amount of net cash flows.
Project 2; because its total cash inflows are $18,000 greater than those of Project 1.
Project 1; because the present value of its cash flows exceeds those of Project 2 by $29,820.75.
Project 1; because the present value of its cash flows is greater than those of Project 2 by $11,048.92
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