Kim and Lee wish to buy a house, and need to borrow $350,000 from the FirstChoice Bank which will charge interest at a rate of j₁₂=5.40%p.a. They intend to repay this loan with monthly payments of $2500, with the first payment occurring one month after the loan was taken out.

a) Illustrate the cash flows associated with this loan as a fully labelled time line diagram.

b) Determine how long it takes to repay the loan.

c) Find the size of the partial payment. Describe and perform a sanity check on your answer.

d) Construct an amortization table showing the last three payments (i.e two full payments and a partial payment), and describe and perform a sanity check on the final outstanding principal.