Question
Gerald has taken out a loan of $100,000 today to start a business. He has agreed to repay the loan on the following terms: Repayments
Gerald has taken out a loan of $100,000 today to start a business. He has agreed to repay the loan on the following terms:
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Repayments will be made on a monthly basis. The first repayment will be made exactly one month from today.
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The repayments for the first 5 years will cover interest only to help reduce the financial burden for Geralds business at the start.
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After the 5-year interest-only period, Gerald will make level monthly payments that will fully repay the loan after an additional 15 years (i.e. 20 years from today, the loan will be fully repaid).
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The interest charged is 5% p.a. effective.
1) Calculate the size of the first repayment due exactly one month from now.
2) Calculate the size of the level repayments that occur after the initial 5-year interest-only period.
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