QUESTION 2 continued. a) This question relates to loanrepayments and loan terms. James and...

90.2K

Verified Solution

Question

Accounting

QUESTION 2 continued. a) This question relates to loanrepayments and loan terms. James and Mary Hall wish to borrow$750,000 to buy a home. The loan from the Federal Bank requiresequal monthly repayments over 25 years, and carries an interestrate of 4.5% per annum, compounded monthly. The first repayment isdue at the end of one month after the loan proceeds are received.You are required to calculate:
i) The effective annual interest rate on the above loan (show asa percentage, correct to 3 decimal places).
ii) The amount of the monthly repayment (consisting of interestand principal repayment components) if the same amount is to bepaid every month over the 25 year period of the loan.
iii)The amount of $Y, if - instead of the above – the FederalBank agrees that James and Mary will repay the loan by paying thebank $3,000 per month for the first 12 months, then $3,500 a monthfor the next 12 months, and after that $Y per month for the balanceof the 25 year term.
iv) How long (in years and months) would it take to repay theloan if, alternatively, James and Mary decide to repay $4,400 permonth, with the first repayment again being at the end of the firstmonth after taking the loan, and continuing until the loan wasrepaid. [HINT: The final repayment is likely to be less than$4,400, and will be paid one month after the final full installmentof $4,400 is paid.)

Answer & Explanation Solved by verified expert

3.9 Ratings (791 Votes)

Solution i Rate of interest on loan 450 Monthly rate of interest 450 12 0375 Effective annual interest rate 1 1r12 1 1100037512 1 4594 Solution ii Loan amount 750000 Period 25 years 300 See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

In: AccountingQUESTION 2 continued. a) This question relates to loanrepayments and loan terms. James and Mary...QUESTION 2 continued. a) This question relates to loanrepayments and loan terms. James and Mary Hall wish to borrow$750,000 to buy a home. The loan from the Federal Bank requiresequal monthly repayments over 25 years, and carries an interestrate of 4.5% per annum, compounded monthly. The first repayment isdue at the end of one month after the loan proceeds are received.You are required to calculate:i) The effective annual interest rate on the above loan (show asa percentage, correct to 3 decimal places).ii) The amount of the monthly repayment (consisting of interestand principal repayment components) if the same amount is to bepaid every month over the 25 year period of the loan.iii)The amount of $Y, if - instead of the above – the FederalBank agrees that James and Mary will repay the loan by paying thebank $3,000 per month for the first 12 months, then $3,500 a monthfor the next 12 months, and after that $Y per month for the balanceof the 25 year term.iv) How long (in years and months) would it take to repay theloan if, alternatively, James and Mary decide to repay $4,400 permonth, with the first repayment again being at the end of the firstmonth after taking the loan, and continuing until the loan wasrepaid. [HINT: The final repayment is likely to be less than$4,400, and will be paid one month after the final full installmentof $4,400 is paid.)