1. Assume that you take a 10-year mortgage for 100,000 at 8.5% p.a. It is to be repaid monthly.

1. What is the monthly repayment amount? Assume the interest is compounded monthly
2. How long does it take to pay off 40% of the loan (i.e. to have $60 000 outstanding)?
3. What is the balance outstanding after two years?
4. After two years the interest rate falls to 8% p.a. what prepayment penalty would make it unattractive to prepay the loan. (prepayment penalty is the fine imposed by the banks on the borrowers for prepaying their mortgage for the purpose of refinancing it at the lower interest rates)