2. A home loan package offers a fixed 2.4% p.a. compounded monthly for the first 5 years, and after 5 years the interest rate increases to 4.2% p.a. compounded monthly. A loan of $300,000 is taken out with level repayments of $1,986.28 per month at the end of each month for the life of the loan. Determine how long it takes to pay off this loan. (a) Suppose the loan had been at a fixed interest rate of 2.4% p.a. compounded monthly for the lifetime of the loan. Calculate how long it would take to pay off the loan. Give your answer rounded to the nearest month. (b) Use your answer to (a) to calculate the unpaid balance of the loan after 5 years. Give your answer rounded to the nearest cent. (c) Use your answer to (b) to calculate how long it will take to pay off the remainder of the loan at the higher interest rate. Give your answer rounded to the nearest month.

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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2. A home loan package offers a fixed 2.4% p.a. compounded monthly for
the first 5 years, and after 5 years the interest rate increases to 4.2%
p.a. compounded monthly. A loan of $300,000 is taken out with level
repayments of $1,986.28 per month at the end of each month for the
life of the loan. Determine how long it takes to pay off this loan.
(a) Suppose the loan had been at a fixed interest rate of 2.4% p.a.
compounded monthly for the lifetime of the loan. Calculate how
long it would take to pay off the loan. Give your answer rounded
to the nearest month.
(b) Use your answer to (a) to calculate the unpaid balance of the
loan after 5 years. Give your answer rounded to the nearest cent.
(c) Use your answer to (b) to calculate how long it will take to pay
off the remainder of the loan at the higher interest rate. Give
your answer rounded to the nearest month.
(d) How long does it take to pay off the loan?
Transcribed Image Text:2. A home loan package offers a fixed 2.4% p.a. compounded monthly for the first 5 years, and after 5 years the interest rate increases to 4.2% p.a. compounded monthly. A loan of $300,000 is taken out with level repayments of $1,986.28 per month at the end of each month for the life of the loan. Determine how long it takes to pay off this loan. (a) Suppose the loan had been at a fixed interest rate of 2.4% p.a. compounded monthly for the lifetime of the loan. Calculate how long it would take to pay off the loan. Give your answer rounded to the nearest month. (b) Use your answer to (a) to calculate the unpaid balance of the loan after 5 years. Give your answer rounded to the nearest cent. (c) Use your answer to (b) to calculate how long it will take to pay off the remainder of the loan at the higher interest rate. Give your answer rounded to the nearest month. (d) How long does it take to pay off the loan?
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