Interest for the initial four-year term of a

$109,000

mortgage is

6.74%

compounded

semi-annually.

The mortgage is to be repaid by equal

monthly

payments over

15

years. The mortgage contract permits lump-sum payments at each anniversary date up to 10% of the original principal.

(a) What is the balance at the end of the four-year term if a lump-sum payment of

$6,500

is made at the end of the third year?

(b) How many more payments will be required after the four-year term if there is no change in the interest rate?

(c) What is the difference in the cost of the mortgage if no lump-sum payment is made?

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