Answered step by step
Verified Expert Solution
Question
1 Approved Answer
a. i. You wish to borrow $100,000 for one year and have had the following offers from two different financial institutions. Which one would you
a. i. You wish to borrow $100,000 for one year and have had the following offers from two different financial institutions. Which one would you choose? Bank A: 9.0% pa compounded quarterly Bank B: 8.5% pa compounded monthly (8 marks) ii. If Bank B charged you an upfront fee of 1% of the loan, would this change your decision? (7 marks) b. You wish to buy a house for $750,000 and the bank has agreed to give you a 15 years loan for 80% of the purchase price, at an annual interest rate of 9%, compounded monthly. The loan will pay off the interest and capital such that there is no debt outstanding at the end of the loan. (i)What are your monthly repayments, the first being due at the end of the first month? (7 marks) (ii) You believe that immediately after the 24th payment, interest rates will rise to 12% pa. If you decide to pay out the loan at that time to avoid the higher interest rate charges, what will be the payout amount? (8 marks)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started