Suppose your parents wish to buy a house whose current market value is $150,000. They

have approached a loan officer at the Bank of Nova Scotia who offers them 25-year

mortgage financing for 75% of the purchase price at an annual rate of 6.75%. Payments

are to be made on a monthly basis even though the bank is required by Canadian laws to

compound the interest semi-annually.

(a) What are the effective annual and monthly rates of interest on the loan?

(b) Assuming the loan payments are due at the end of each month:

(i) determine the amount of the monthly loan payments

(ii) determine the amortization schedule for the first 3 months

(iii) determine the principal outstanding at the end of the 5th year. How much interest

has been paid over the 5 years?