Part B: Calculations 7942370 Interest rate: 6.59% pa 1. Initial fortnightly payment of a 25-year mortgage using the PVA formula. Rearranged formula: CF = PVA x [r/1-(1+r)^n] - - Fortnightly interest rate: 6.59%/26 = 0.00253461538% N = 25 years x 26 = 650 fortnights CF = 794237 x [0.00253461538/1-(1+0.00253461538)^-650] = 2494.32 So, the initial fortnightly payment for the 25-year mortgage is approximately $2494.32 2. Fortnightly payment in Year 6 - 10 if the interest rate is increased by 1.5% after 5 years using the PVA formula. - - - New interest rate: 6.59 + 1.5 = 8.09% annually or 0.00311153846% fortnightly 5 x 26 130 fortnights 794237 x [0.00311153846/1-(1+0.00311153846)^-130] = 7437.61 So, the fortnightly payment in Year 6-10 is approximately $7437.61 3. Fortnightly payment from Year 11 - 15 if the interest rate is further increased by 0.6% after 10 years using the PVA formula. - New interest rate: 8.09 + 0.6 = 8.69% annually or 0.00334230769 fortnightly 5 x 26 130 fortnights 794237 x [0.00334230769/1-(1+0.00334230769)^-130] =7542.67 So, the fortnightly payment in Year 11-15 is approximately $7542.67 4. Fortnightly payment from Year 16 - 25 if the interest rate is further increased by 1.2% after 15 years using the PVA formula. - New interest rate: 8.69 + 1.2 = 9.89% annually or 0.00380384615 fortnightly 10 x 26260 fortnights 794237 x [0.00380384615/1-(1+0.00380384615)^-260] = 4815.71 So, the fortnightly payment in Year 16-25 is approximately $4815.71 5. Effective annual interest rate for each period: Year 1-5, Year 6-10, Year - - - 11-15, and Year 16-25 using the EAR formula. Years 1-5: EAR = (1+0.00253461538)^26 -1 x 100 = 6.8 Years 6-10: EAR = (1+00311153846)^26-1 x 100 = 8.41 Years 11-15: EAR = (1 + 00334230769)^26 - 1 x 100 9.06 Years 16-25: EAR = (1 + 0.00380384615)^26 - 1 x 100 O 10.37 6. Average Effective annual interest rate of this 25 years mortgage (5 x 6.8 + 5 x 8.41 + 5 x 9.06 + 5 x 10.37)/25 = 6.928 So, the average effective annual interest rate for the entire 25-year mortgage is approximately 6.93%