Q2. (a) Abu just borrowed RM30,000 to pay for a second hand car from UTAR Bank. He took out a 60-month loan at an interest rate of 10.472% per annum and his installment payments are RM761.80 per month. The UTAR Banks loan officer showed the following calculations to Abu on how the monthly installment payments are derived: Total interest to be paid = 10.472% x RM30,000 x 5 years = RM15,708 Total interest and principal to be paid = RM15,708 + RM30,000 = RM45,708 Monthly instalment = RM45,708 / 60 months = RM761.80 Abu feels that he is effectively paying much more than 10.472% per annum for the abovementioned loan but he does not know how to calculative effective annual interest rate. Evaluate whether Abus suspicion is indeed justified or not. (10 marks)

(b) Your parents have decided to sell their home, and they ask you what their current mortgage balance is. In addition, they also want to know how much interest and principal have they paid for the last 15 years. They took out a $125,000 mortgage 15 years ago with an original term of 25 years at 8% interest rate. (10 marks)

(c) Differentiate between effective annual rate (EAR) and annual percentage rate (APR). Explain the effect on EAR when interest is compounded more frequently. (10 marks)