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5. (20 points) You plan to borrow $426,500 to purchase a new house. The nominal interest rate is fixed at 3.4% p.a., compounded monthly. a)
5. (20 points) You plan to borrow $426,500 to purchase a new house. The nominal interest rate is fixed at 3.4% p.a., compounded monthly. a) Draw a discrete cash flow diagram of the purchase and payback on a 25-year mortgage from the bank's perspective. b) What is the monthly payment on a 25-year mortgage? c) What is the monthly payment on a 15-year mortgage? d) What is the difference in the amount of interest paid over the lifetime of each loan? (Calculate the interest paid for a 25-year mortgage and a 15-year mortgage and subtract one value from the other.) e) If the monthly payment is $1900, what is the duration of the loan in months? f) (Extra credit) If the monthly payment is $2500 for a 20-year loan, what are the nominal and effective annual interest rates? (Show your work. No partial credit.)
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