Question 2

(a)

You are looking at a car loan to finance your newly bought dream car. The car will cost you $150,000 of which you must pay 40% upfront. The car dealer quotes you an interest rate of 2% per annum for a 5-year loan, for which monthly payments are based on the following formula: [[(Loan amount x interest rate per annum x Loan tenure (no of years)] + loan amount ] / Loan tenure (no of months) Calculate the interest rate you will be paying every month. (10 marks)

(b) (i) You are able to secure financing for your car from another source. You will have to pay 3% per annum on this loan. The lender requires you to pay monthly for 5 years. Is this loan more attractive than the one from the car dealer? (5 marks)

(ii)	Suppose the lender requires you to set aside $10,000 as security to be deposited with the lender until the loan matures and repayment is made. What interest rate must the lender charge for it to be equivalent to the interest rate charged by the car dealer? (7 marks)

(c) Suppose you are looking to refinance your housing loan and you only have $90,000 left to pay on the mortgage.

(i)	What interest rate (per annum) should the bank quote you on the housing loan for it to be equivalent to the rate quoted by the car dealer? (2 marks)

(ii)

What is the monthly amount you would have to pay in this case? (2 marks)

(iii)

What is the first month principal and interest paid? What is the balance outstanding after these payments are made? (4 marks)