Question
On the first of May 2015 Lee and Kim borrowed $250,000 from the Bank in order to buy an apartment. The loan was to be
On the first of May 2015 Lee and Kim borrowed $250,000 from the Bank in order to buy an apartment. The loan was to be repaid through 180 monthly payments over a period of 15 years, with the first payment due on the first of June 2015, and each payment being the same size. The interest rate charged by the Bank was j12=5.04% p.a.
A. Illustrate all the cash flows associated with this loan as a fully labelled timeline diagram
B. Determine the size of the monthly payments. Enter this value to the nearest cent C. Describe and carry out two sanity checks on your answer to part b). D. Determine the size of the outstanding principal immediately after Lee and Kims 20th payment. Enter this value to the nearest cent E. If the interest rate charged by the Bank increases to j12 = 5.93% p.a. immediately after Lee and Kims 20th payment, determine how many more payments it will take to pay off the loan, assuming that Lee and Kim dont change their payment size. F. Determine the size of the partial payment G. Describe and carry out a strong sanity check on your answer to f). H. Construct an amortization schedule, showing the last 5 payments (i.e. four full payments and a partial payment). Ensure that you include example calculations for one line of the schedule, and that you show how you got the starting OP for the table. I. Lee and Kim decide that rather than making a partial payment the month after the full payments finished, they would rather make the last full payment large enough to retire the loan then. Determine the size that this larger payment would need to be. Ensure that you explain the logic of the approach. J. Referring back to question e), determine what the new payment size would need to be if Lee and Kim wanted to retire the debt by May 2030. (i.e. in 160 more months).
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