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A customer of a bank has recently applied to take out a loan on the following terms: - Amount borrowed 10,000 - Loan to be
A customer of a bank has recently applied to take out a loan on the following terms: - Amount borrowed 10,000 - Loan to be repaid over 5 years - Initial interest rate of 8% per annum convertible monthly applies for the first two years - Followed by an effective interest rate of 6% per annum for the rest of the term - Level repayments of X to be made half-yearly in arrear a) Calculate the repayment amount, X. [10 marks] b) Explain, without doing any calculations, how your answer to part a) would change if the interest rate in the first two years was instead 8% per annum effective. [2 marks] c) Calculate, using the Prospective Method, the outstanding loan at the beginning of the fourth year, immediately after the repayment due at that point has been made. [4 marks] d) Explain, without doing any further calculations, how your answer to part c) above would change in each of the following circumstances: i) The initial amount borrowed by the customer was 12,000; ii) The term of the loan is 6 years; iii) The repayments are made monthly in arrear. Note: you should assume that each change applies in isolation
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