1)Your fully amortising home loan is costing you $2,000 in fortnightly repayments for the 10 years remaining maturity and the interest rate on this loan is 3.5% p.a. What is the balance of this loan?

Hint: Loan balance = how much you owe to the bank, which is not just the principal you have borrowed but the interest cost over the loan life as well. Which of the 4 Excel Loan Amortisation calculators should be used in this question? Remember a fully amortising loan has a FV = 0 and there are 26 fornights in a year.

a.

$438, 502.68

b.

$348, 502.68

c.

$843, 502.68

d.

$502, 843.68

e.

$205, 348.68

2)Your interest rate suddenly increases by 150 basis points and you decide to shift to a partly amortising loan with balance to repay of $10,000 at the end of the loan. Using the loan balance you calculated before (in Q5a) what are you new fortnightly repayments going to be? The loan still has 10 years remaining maturity

Hint: Basis points is how changes in interest rates are communicated to avoid decimals. 1% = 100 basis points. So, given that the interest rate on this loan was originally 3.5%, what is the new interest rate per annum? You need the correct loan balance from Q5a, to get the correct answer here. The FV for a partly amortising loan = to the balance to repay.

a.

$2,511.08

b.

$2,115.08

c.

$2,815.08

d.

$2,085.08

e.

$2,108.15

3)You decide that you cannot afford the higher repayments and decide to re-negotiate the loan for a longer maturity than 10 years instead. How much longer in years will your loan be?

Hint: The interest is the higher rate in Q5b, you have shifted to a partly amortising loan with balance to repay of $10,000 at the end of the loan, you are still making fornightly payments of $2,000 and you need to use the correct loan balance from Q5a. Note: hints are not given the test and the exam.

a.

0.66 years

b.

0.33 years

c.

0.44 years

d.

0.55 years

e.

0.77 years