A graduate borrows $30,000 from the Wrexham Bank to buy a car This will be repaid through fortnightly repayments over the next 4 years, commencing in a fortnights time The Wrexham Bank will charge interest at a rate of j 26 10 01 p a Illustrate the cash flows associated with this loan as a fully labelled time line diagram 2 marks Determine the size the fortnightly repayment 4 marks Describe and perform a quick sanity check on your answer from part b) 2 marks Construct an amortization table showing the last two payments, and describe and perform a sanity check on the final outstanding principal Ensure that you clearly show how you found the Outstanding Principal, and you show the calculations for one line from you amortization table 5 1 6 marks Between the 36 th and 37 th payment, the graduate receives their annual performance bonus They decide to pay off an extra $4,000 off their loan That is, their 37 th payment will be $4,000 larger than the normal payment size If they continue with the usual payment size in the ensuing months, determine how long it will take to pay off the loan ( except possibly for a final partial payment )

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Aug 27, 2024

A graduate borrows $30,000 from the Wrexham Bank to buy a car. This will be repaid through fortnightly repayments over the next 4 years, commencing

A graduate borrows $30,000 from the Wrexham Bank to buy a car. This will be repaid through fortnightly repayments over the next 4 years, commencing in a fortnights time. The Wrexham Bank will charge interest at a rate of j₂₆ = 10.01 % p.a.

Illustrate the cash flows associated with this loan as a fully labelled time line diagram.

[2 marks]

Determine the size the fortnightly repayment.

[4 marks]

Describe and perform a quick sanity check on your answer from part b).

[2 marks]

Construct an amortization table showing the last two payments, and describe and perform a sanity check on the final outstanding principal. Ensure that you clearly show how you found the Outstanding Principal, and you show the calculations for one line from you amortization table.

[5+1 = 6 marks]

Between the 36^th and 37^th payment, the graduate receives their annual performance bonus. They decide to pay off an extra $4,000 off their loan. That is, their 37^th payment will be $4,000 larger than the normal payment size. If they continue with the usual payment size* in the ensuing months, determine how long it will take to pay off the loan. (* except possibly for a final partial payment.)