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On January 1, 2017, I took out a loan of $150,000. I agreed to pay it back in equal payments, one payment at the beginning
On January 1, 2017, I took out a loan of $150,000. I agreed to pay it back in equal payments, one payment at the beginning of each of the next 12 years, at an annual effective rate of 5%. I made the first two payments as scheduled, but I missed the third payment. i) Sketch a timeline to show the payment dates for my loan, and mark the missing payment. (This doesn't need to be accurate.) [2] ii) What is the amount of each scheduled loan repayment? [2] iii) How much interest did I pay off on January 1, 2019? [2] A few months before the fourth payment was due I negotiated new terms with my bank to pay off the balance of the loan. I will keep the same payment dates but the bank doesn't trust me now so they have increased the annual effective rate on my loan to 7%. iv) What i the amount of my new annual payment? [5] I took out this loan because I had a good plan -I actually used the loan proceeds to buy a 12-year annuity at an annual effective rate of 10%, and I've reinvested every annuity payment in an account that earns 8% annual effective. v) What will my reinvested annuity accumulate to at the end of the 12-year period? [6] vi) My original plan was good, but it got thrown off when I missed a payment and the loan rate changed. Does my plan still makes sense? State your opinion and briefly explain why. (You may show calculations to explain your opinion, but you don't need to.) [3]
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