Kim and Lee wish to buy a house and have it paid off in ten...
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Kim and Lee wish to buy a house and have it paid off in ten years. They have realised that at different stages of their life cycle they will have different capacities to make loan
repayments. Their plans and budgets are captured in the tables below:
Interest rate of loan that they have access to:
J26= 4.68% p.a.
Frequent International Holidays for two years.
Max repayment of $800 per fortnight for fortnights 1 to 52
Regular domestic travel for four years.
Max repayment of $1200 per fortnight for fortnights 53 to 156
Settled down homebodies.
Max Repayment of $1500 per fortnight for fortnights 157 to 260
a) Assuming they make the maximum payments that they have budgeted for, illustrate the cash flows associated with the loan as a fully labelled time line diagram.
(Assume the first repayment occurs one period after they take out the loan.)
b) By breaking this cash flow into three simple annuities, determine the maximum amount that Kim and Lee can borrow if they are to pay off the loan in ten years.
c) Assuming that Kim and Lee borrow the maximum amount that they can afford to pay back in ten years, construct an amortisation table showing the last three payments.
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