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Janis has borrowed $100,000 from the bank to buy a rare Pokemon card. Her debatable...

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Finance

Janis has borrowed $100,000 from the bank to buy a rare Pokemon card. Her debatable financial judgement aside, the bank has agreed to lend her this money at an interest rate of 13% p.a. effective. Janis has agreed to repay this loan over 2 years, using 8 level quarterly installments. The first installment is exactly 3 months from today. Using this information, answer the following questions. a) State clearly the type of effective rate that should be used in an annuity formula for Janis loan as described above (e.g. effective quarterly rate, effective weekly rate, etc.). Then determine the value of this effective rate. (1 mark) b) Draw a cash flow diagram for Janis loan described above, and then determine the size of the level repayment for Janis loan. (2 marks) c) Suppose that Janis first repayment was instead 2 months from today (the payments are still quarterly). Without doing any further calculations, would you expect Janis quarterly repayments to be larger or smaller than the amount calculated in part b)? Justify your answer.

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