- Kurt has criticised Janis decision to invest in Pokemon cards. Instead, he believes that Beanie Babies are a far superior investment. Shockingly, Kurt has borrowed $150,00 (from a different bank) and spent all that money on Beanie Babies.

- Kurt is being charged 1% per month effective on his loan. To repay this loan, he has agreed to make 12 half-yearly-end payments of $18,000 as well as a smaller 13th payment 6 months after the final $18,000 payment (explicitly, he will repay his loan after 6.5 years). The first $18,000 payment occurs exactly 6 months from today.

Using this information, answer the following advice from Kurt.

(a) Calculate the effective half-yearly rate for Kurts loan (1 Mark)

(b) Draw a cash flow diagram for Kurts loan as described above. Then calculate the size of the extra smaller repayment. (2 Marks)

(c) Calculate the loan outstanding after 1 year using the retrospective method. Calculations done using the prospective method will score 0 marks. (1 mark)

(d) The loan outstanding after 2 years is $ 111, 539.33 ( for the purposes of part g, use this rounded value ). Using this value (and your answer to part F), calculate the total principal and interest repaid by Kurt over the second year. (2 Marks)

(e) Bonus question, without doing any further calculations, would the principal repaid in the third year be greater than or less than your answer to part g? Justify your answer. (1 mark)