Question
Note: Correct answer to calculations-based questions will only be awarded full mark if clearly stated numerical formula (including the left-hand side of the equation) is
Note: Correct answer to calculations-based questions will only be awarded full mark if clearly stated numerical formula (including the left-hand side of the equation) is provided. Correct answer without calculations support will only receive a tiny fraction of mark assigned for the question.
To pay off your loan, you are required to make payments of $1,000 per month in the first year and payments of $1,500 every month during the second and third years. The investment account from which you will withdraw to pay for the loan earns an interest rate of 6% compounded monthly. The first payment begins in one month.
a) How much money do you need to have in your investment account now to pay off the loan (according to the repayment schedule of the loan contract)? (9 marks)
b) If you do not have to make the second years payments (someone is paying for you) and thus you can leave the money in the investment account to earn interest. How much more money will you have at the end of Year 4? (4 marks)
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