You have just bought a car. The $50,000 car loan from the finance company involves monthly

payments made at the end of the month, over 60 months. However, at the end of the loan, there

is a lump sum payment, called a balloon payment of $30,000.

Assume the interest rate applicable is 6% p.a. monthly rest throughout the loan tenure.

(a) Discuss, using time value concepts of PV or FV of single sums, or multiple sums, etc.,

how you can compute the first monthly repayment. Show the computations to solve for

the monthly repayment amount.

(10 marks)

(b) Explain and compute the interest amount of the first monthly repayment.

(4 marks)

(c) Explain and calculate the interest amount of the 13th monthly repayment.

(5 marks)

(d) Discuss why the finance company offers the balloon scheme instead of the standard

loan scheme without a balloon payment.

(6 marks)

Note: You are to provide explanations of the computations you made. Just providing the answer

from the financial calculator is not sufficient