Mortgages can be taken out at a fixed interest rate over a period of time, which means that the interest rate cannot be changed during the time period agreed upon. It is common for interest rates to be variable, which means that the bank can adjust them up or down at any time. At the time that a loan is taken out, fixed interest rates are usually higher than variable interest rates a b Suppose that Kim and Lee borrow $420 000 from the Commonwealth Bank at a fixed interest rate of 3.5% p.a., compounded monthly, for 10 years. How much would they still owe at the end of this time if they make monthly repayments of $3000? Consider the following situation. Another couple, Dale and Jude borrow the same amount ($420 000) as Kim and Lee from the Commonwealth Bank. They borrow at the same time and make the same repayments of $3000. However, Dale and Jude choose the variable interest rate of 3% p.a., compounded monthly. Suppose that after 4 years the interest rate increases to 4% p.a., compounded monthly, where it remains for the next 6 years. il How much would Dale and Jude still owe after 4 years? how much would Dale and Jude still owe after 10 years?
Mortgages can be taken out at a fixed interest rate over a period of time, which means that the interest rate cannot be changed during the time period agreed upon. It is common for interest rates to be variable, which means that the bank can adjust them up or down at any time. At the time that a loan is taken out, fixed interest rates are usually higher than variable interest rates a b Suppose that Kim and Lee borrow $420 000 from the Commonwealth Bank at a fixed interest rate of 3.5% p.a., compounded monthly, for 10 years. How much would they still owe at the end of this time if they make monthly repayments of $3000? Consider the following situation. Another couple, Dale and Jude borrow the same amount ($420 000) as Kim and Lee from the Commonwealth Bank. They borrow at the same time and make the same repayments of $3000. However, Dale and Jude choose the variable interest rate of 3% p.a., compounded monthly. Suppose that after 4 years the interest rate increases to 4% p.a., compounded monthly, where it remains for the next 6 years. il How much would Dale and Jude still owe after 4 years? how much would Dale and Jude still owe after 10 years?
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
Problem 1PS
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Do a and b only
Transcribed Image Text:Mortgages can be taken out ata fixed interest rate over a period of time, which means that the
interest rate cannot be changed during the time period agreed upon. It is common for interest
rates to be variable, which means that the bank can adjust them up or down at any time, At
the time that a loan is taken out, fixed interest rates are usually higher than variable interest
rates
Suppose that Kim and Lee borrow $420 000 from the Commonwealth Bank at a fixed
interest rate of 3.5% p.a., compounded monthly, for 10 years. How much would they
still owe at the end of this time if they make monthiy repayments of $3000?
Consider the following situation. Another couple, Dale and Jude borrow the same
amount ($420 000) as Kim and Lee from the Commonwealth Bank. They borrow at
the same time and make the same repayments of $3000. However, Dale and Jude
choose the variable interest rate of 3% p.a., compounded monthly. Suppose that after
4 years the interest rate increases to 4% p.a., compounded monthly, where it remains
for the next 6 years.
How much would Dale and Jude still owe after 4 years?
il
Tiow much would Dale and Jude still owe after 10 years?
Compare Kim and Lee's situation after 10 years with that of Dale and Jude. Which
couple would be better off? Explain.
Another person, Citra, intends to borrow $420 000 from ANZ Bank at 4.25% p.a. as
an interest-only loan to buy a one-bedroom apartment as an investment. She hopes
eventually to make a capital gain (i.e. money arising from an increase in value of the
apartment over time).
What would Citra's monthly repayment be?
ii
How much would Citra still owe after 10 years?
Question 5
Page 7 af 9
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