Question
2. The Smiths take out 5-year $240,000 mortgage with Bank of Quebec in which the balance is to be financed by equal monthly payments over
2. The Smiths take out 5-year $240,000 mortgage with Bank of Quebec in which the balance is to be financed by equal monthly payments over 25 years at 3.0% interest compounded semi-annually. (Assume monthly payments). (a) What is the monthly mortgage payment (round up to the next dollar)? [3 marks] (b) How much do they owe on their mortgage at the end of second year? [2 marks] (c) At the end of each year (on the anniversary date of the mortgage) they have the option of making an extra payment on their mortgage up to a maximum of 10% of the initial amount of the mortgage. How much time would they save if they made a 10% lump-sum payment at the end of the second year equal to 10% of the original mortgage? How much interest will they save? Assume that the interest rate remains the same during the entire time. [8 marks]
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