Kim and Lee wish to borrow $200,000 from the Unity Bank as a P&I loan, in order to buy an apartment. They intend to repay the loan over 15 years with regular fortnightly payments, with the first payment being one fortnight after they take out the loan. The Unity Bank charges interest at j26 = 4.94% p.a.

When they read the loan information carefully Kim and Lee find out that because they are considered risky borrowers, they will need to pay a fortnightly Mortgage Insurance Fee (MIF) every fortnight for the first three years of their loan. The fortnightly MIF is set at 0.016% of the amount borrowed.

c) Determine the size of the fortnightly MIF.

4. d) Produce a new fully labelled time line diagram for the loan repayment scenario, showing all the values, and incorporating the MIFs.

   [2 marks]

5. e) Kim and Lee want to be able to compare the loan from the Unity Bank with what is available from other banks. To do this they need to know the comparison rate. To do this they need to solve an Equation of Equivalence (EoE). This is an expression of the form PV(what you get) = PV(what you pay). Derive and present the EoE that is appropriate for this scenario. Do NOT seek to simplify the expression. NB [Hint: This is a "Price is Right" type of problem].

[3 marks]

6. f) Using an estimate of i=0.002, determine the value of the right hand side of the equation of equivalence.