Please use these formulas to answer all the questions.

Jeeslyn is considering buying an apartment as an investment, and she is trying to decide

between the loans advertised by three different banks. She intends to borrow $210 000.

The options are shown in the table below.

BANK INTEREST RATE PER ANNUM ADDITIONAL INFORMATION

Trust

Bank

6%, compounding monthly None

Honest

Bank

5.5%, compounding monthly, for the

first 2 years

This loan has an introductory rate of

5.5% for the first two years, and

changes to 7.5% for the remainder of

the term.

7.5%, compounding monthly, after 2

years

Cheap

Bank

5%, compounding fortnightly Interest-only repayments

a. Show that R = 1.005 for the loan from Trust Bank.

b. Suppose that Jesslyn borrows $210 000 from Trust Bank. Use the reducing

balance annuities formula to determine how much she would owe at the end of 4

years if she makes monthly repayments of $1500?

c. If Jesslyn borrows from Honest Bank instead, use the Finance Solver application on

your calculator to calculate how much she still owes after 4 years. (She makes

monthly repayments of $1500.) Write the answer below the tables.

d. How much more would she still owe at the end of 4 years if she borrows from

Honest Bank instead of Trust Bank?

e. What would the fortnightly repayment be if Jesslyn borrowed from Cheap Bank?

N I (%) PV PMT FV P/Y C/Y

N I (%) PV PMT FV P/Y C/Y

Page 5 of 8 f. State one advantage and one disadvantage of taking a loan from Cheap Bank, and

explain your answers.

Advantage:

Disadvantage:

Jesslyn decides to take a loan of $210 000 from Trust Bank.

g. i. She decides she can pay off $1600 per month. How many repayments would be

required to pay off the loan? Write the answer below the table.

ii. How many years would it take to pay off the loan? Give your answer correct to

the nearest year.

iii. What would the value of the final payment be? Give your answer to the nearest

dollar. Write the answer below the table.

h. i. What is the total cost of the loan (i.e. the total of all repayments), correct to the

nearest dollar?

ii. How much interest would Jesslyn pay on this loan, correct to the nearest dollar?

Question 2 Jeeslyn is considering buying an apartment as an investment, and she is trying to decide between the loans advertised by three different banks. She intends to borrow $210 000. The options are shown in the table below. BANKI INTEREST RATE PER ANNUM ADDITIONAL INFORMATION Trust 6%, compounding monthly None Bank Honest 5.5%, compounding monthly, for the This loan has an introductory rate of Bank first 2 years 5.5% for the first two years, and 7.5%, compounding monthly, after 2 changes to 7.5% for the remainder of years the term. Cheap 5%, compounding fortnightly Interest-only repayments Bank a. Show that R = 1.005 for the loan from Trust Bank b. Suppose that Jesslyn borrows $210 000 from Trust Bank. Use the reducing balance annuities formula to determine how much she would owe at the end of 4 years if she makes monthly repayments of $1500? c. If Jesslyn borrows from Honest Bank instead, use the Finance Solver application on your calculator to calculate how much she still owes after 4 years. (She makes monthly repayments of $1500.) Write the answer below the tables. 1(%) PV PMT FV PY C NY 11%) PVPMTFVPNYC d. How much more would she still owe at the end of 4 years if she borrows from Honest Bank instead of Trust Bank? What would the fortnightly repayment be if Jesslyn borrowed from Cheap Bank? f. State one advantage and one disadvantage of taking a loan from Cheap Bank, and explain your answers. Advantage: Disadvantage: Jesslyn decides to take a loan of $210 000 from Trust Bank g. i. She decides she can pay off $1600 per month. How many repayments would be required to pay off the loan? Write the answer below the table. N 1(%) PVPMT FVPIYCHY ii. How many years would it take to pay off the loan? Give your answer correct to the nearest year. ili. What would the value of the final payment be? Give your answer to the nearest dollar. Write the answer below the table. N (%) TPV TPMTTFVT PIY TCHY h. i. What is the total cost of the loan (i.e. the total of all repayments), correct to the nearest dollar? ii. How much interest would Jesslyn pay on this loan, correct to the nearest dollar? Formula Sheet Simple interest Compound interest A = PR", where R = 1+ The annuities formula - reducing balance loans A = pr(R"- ; 1), where R = 1+ 100 The annuities formula - investments A = PR" + (8"-*", where r = 1 + Interest-only loans (& Perpetuities) Payment (or () = 100 Effective Interest Rate