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4, Jim needs to borrow $500 for 60 days. Bank is offering to loan the money at 9% bank discount rate. (a) What would be the maturity value on this loan? (b) What rate of simple discount would be equivalent to this loan? 5. A couple purchased a house and signed a mortgage contract for $350 000 to be paid in monthly installments over 25 year, at 3.5%. The contract stipulates that after 5 years the mortgage will be renegotiated at a new prevailing rate of interest. Calculate: (a) Monthly payment for initial 5 years; (b) The outstanding principal after 5 years; (c) The new payment (now every second week) after 5 years at 4.2%. NOTE: mortgages rates in Canada are always compounded twice a year

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Answer #1

(4) (a) Maturity Value of this loan = $500 + $500*9%*60/365

= $500 + $7.4

= $507.4

(b) To calculate simple interest discount,

Amount = Principal*Time*Rate

$507.4 = $500*60/365*Rate

Rate = 6.17%

(5) (a) Monthly payment after 5 years Amount of Loan Rate of Interest Period of Repayment Periodicity 3,50,000.00 3.5% 25 monthly 12 Effective Rate of Interest Num

Therefore, Monthly payment for initial 5 years = $1752.18

(b)

LOAN REPAYMENT SCHEDUL Installment Number Opening Balance Interest Installment Closing Balance 3,50,000.00 S 3,49,268.65 $ 3,48,535.17 $ 3,47,799.55 S 3,47,061.78 S 3,46,321.86 S 3,45,579.78 S 3,44,835.54 5 3,44,089.13 S 3,43,340.54 5 3,42,589.77 S 3,41,836.81 $ 3,41,081.65 $ 3,40,324.29 S 3,39,564.72 S 3,38,802.93 S 3,38,038.92 S 3,37,272.69 S 3,36,504.22 S 3,35,733.51S 1,020.83 $ 1,018.70 $ 1,016.56 $ 1,014.42 $ 1,012.26 $ 1,010.11| $ 1,007.94 $ 1,005.77 $ 1,003.59 S 1,00141| $ 999.225 997.025 994.825 992.61$ 990.405 988.185 985.955 983.71$ 981.47$ 979.225 1,752.18 S 1,752.18 S 1,752.18 S 1,752.18 S 1,752.18 S 1,752.18 S 1,752.18 S 1,752.18 S 1,752.18 S 1,752.18 S 1,752.18 S 1,752.18 S 1,752.18 S 1,752.18 S 1,752.18 S 1,752.18 S 1,752.18 S 1,752.18 S 1,752.18 S 1,752.18 S 3,49,268.65 3,48,535.17 3,47,799.55 3,47,061.78 3,46,321.86 3,45,579.78 3,44,835.54 3,44,089.13 3,43,340.54 3,42,589.77 3,41,836.81 3,41,081.65 3,40,324.29 3,39,564.72 3,38,802.93 3,38,038.92 3,37,272.69 3,36,504.22 3,35,733.51 3,34,960.55 11 $ 12 $ 15 $ 16 $ 17 $ 18 $ 19 $ 20 5

3,35,733.51 5 3,34,960.55 5 3,34,185.33 5 3,33,407.86 5 3,32,628.11 S 3,31,846.10 5 3,31,061.80 5 3,30,275.21 5 3,29,486.33 S 3,28,695.15 5 3,27,901.66 5 3,27,105.86 5 3,26,307.74S 3,25,507.29 5 3,24,704.50 5 3,23,899.37 5 3,23,091.90 S 3,22,282.07 5 3,21,469.87 5 3,20,655.31 5 3,19,838.37 S 3,19,019.055 3,18,197.34 5 3,17,373.23 5 3,16,546.72 S 3,15,717.80 5 3,14,886.46 5 3,14,052.70 5 3,13,216.50 S 3,12,377.87 5 3,11,536.79 5 1,752.18S 1,752.18S 1,752.18$ 1,752.18 S 1,752.18S 1,752.18S 1,752.18$ 1,752.18S 1,752.18S 1,752.18S 1,752.18$ 1,752.18 S 1,752.18S 1,752.18S 1,752.18$ 1,752.18 S 1,752.18S 1,752.18S 1,752.18$ 1,752.18 S 1,752.18S 1,752.18S 1,752.18$ 1,752.18 S 1,752.18S 1,752.18S 1,752.18$ 1,752.18 S 1,752.18S 1,752.18S 1,752.18$ 979.22 $ 976.97 $ 974.71 $ 3,34,960.55 3,34,185.33 3,33,407.86 3,32,628.11 3,31,846.10 3,31,061.80 3,30,275.21 3,29,486.33 3,28,695.15 3,27,901.66 3,27,105.86 3,26,307.74 3,25,507.29 3,24,704.50 3,23,899.37 3,23,091.90 3,22,282.07 3,21,469.87 3,20,655.31 3,19,838.37 3,19,019.05 3,18,197.34 3,17,373.23 3,16,546.72 3,15,717.80 3,14,886.46 3,14,052.70 3,13,216.50 3,12,377.87 3,11,536.79 3,10,693.26 970.17 $ 967.88 $ 965.60$ 963.30 $ 961.00$ 958.69 $ 956.38 $ 954.06 $ 949.40 $ 947.05 $ 942.35 $ 939.99$ 935.24S 930.47 $ 928.08S 923.26S 920.84$ 918.42 $ 908.65 $

3,11,536.79 $ 3,10,693.26 $ 3,09,847.26 $ 3,08,998.80 $ 3,08,147.87 $ 3,07,294.45 $ 3,06,438.54 $ 3,05,580.14 $ 3,04,719.23 3,03,855.81 $ 3,02,989.88 S 1,752.18S 1,752.1S 1,752.18$ 1,752.18S 1,752.18S 1,752.18S 1,752.18$ 1,752.18S 1,752.18S 1,752.18 $ 1,752.18 50 51 52 53 908.65 S 906.19 $ 903.72 $ 901.25 $ 898.76 896.28 $ 893.78 $ 8 3,10,693.26 3,09,847.26 3,08,998.80 3,08,147.87 3,07,294.45 3,06,438.54 3,05,580.14 3,04,719.23 3,03,855.81 3,02,989.88 3,02,121.41 6 56 57 58 59 2 9 891.285 888.76 $ 886.25$ 883.72 S 9 3Therefore, the outstanding principal after 5 years is $302,121.41

(5)(c) Now, the payment is to be made every second week

No of weeks in a year = 52

No of payments in a year = 52/2 = 24 times

Amount of Loan Rate of Interest Period of Repayment Periodicity 3,02,121.41 4.2% 20 every second week 24 Effective Rate of Interest Number of Installments Amount of Installment $ 0.00175 D7/E9 480 D8*E9 930.88 PMT(D11,D12,-D6)

Therefore, new payment after 5 year at 4.2 % = $930.88.

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