Suppose that you put 5,000 in your saving account and your

bank offffers an interest rate of 5% p.a. What will be the compounded amount in fifive years

and the corresponding annual effffective rate (AER)?

(a) If it was compounded quarterly?

(b) If it was compounded monthly?

(c) If it was compounded fortnightly?

(d) If it was compounded weekly?

(e) If it was compounded daily?

A loan of 5000 is repaid by 15 annual payments of 500, with

the fifirst payment due in a year. What is the interest rate?

An wishes to buy a house in Mowbray, and needs to borrow

350,000 from the ABC Bank which will charge interest at a rate of j12 = 6% p.a. Initially

she intends to repay this loan with fortnightly payments of 1500, with the fifirst payment

occurring one month after the loan was taken out. However, after making 11 payments

she loses her job and misses the 12th, 13th, 14th payments. By the time of the 15th the

payments are resumed and from the 16th payment she plans to drop this back to 1000

per fortnight.

(a) How big does the 15th payment have to be to return you to your original repayment

schedule?

(b) Determine how long it takes to repay the loan.

(c) Find the size of the partial payment. Describe and perform a sanity check on your

answer.

(d) Construct an amortization table showing the last three payments (i.e two full pay

ments and a partial payment), and describe and perform a sanity check on the fifinal

outstanding principal.

This month, June, your parents wish to save 10,000 for your

wedding that will be on 16th December next year. They start deposit by the end of June

and earn j12 = 6% p.a.

(a) What is the regular deposit required?

(b) Immediately after your fifive deposits interest rates fall to j12 = 5%. What new

deposit size is required to meet your original target?