part 2.

Michael takes out a 20-year loan of $200,000, with a fixed interest rate of 3.7% per annum compounding monthly for the first 3 years. Afterwards, the loan will revert to the market interest rate.

Michael will make monthly repayments over the next 20 years, the first of which is exactly one month from today. The bank calculates his current monthly repayments assuming the fixed interest rate of 3.7% will stay the same over the coming 20 years.

(b) Calculate the loan outstanding at the end of the fixed interest period (i.e. after 3 years). (1 mark)