Mrs Jones took out a mortgage of £450,000 on 1st April 2007. According to the initial contrac he mortgage was to be cleared fully by a level annuity payable quarterly in arrears for 1 ears. The repayments were calculated on the basis of a nominal rate of interest of 6% per annu onvertible quarterly. (i) Showing your full workout, calculate the amount of the quarterly repayments. (ii) Calculate the amount of capital which was repaid in the first instalment on 1st July 2007. C:\
Mrs Jones took out a mortgage of £450,000 on 1st April 2007. According to the initial contrac he mortgage was to be cleared fully by a level annuity payable quarterly in arrears for 1 ears. The repayments were calculated on the basis of a nominal rate of interest of 6% per annu onvertible quarterly. (i) Showing your full workout, calculate the amount of the quarterly repayments. (ii) Calculate the amount of capital which was repaid in the first instalment on 1st July 2007. C:\
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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Transcribed Image Text:Mrs Jones took out a mortgage of £450,000 on 1st April 2007. According to the initial contract,
the mortgage was to be cleared fully by a level annuity payable quarterly in arrears for 15
years.
The repayments were calculated on the basis of a nominal rate of interest of 6% per annum
convertible quarterly.
(i) Showing your full workout, calculate the amount of the quarterly repayments.
(ii) Calculate the amount of capital which was repaid in the first instalment on
1st July 2007.
(iii) Calculate the amount of loan outstanding immediately after the quarterly
repayment due on 1st October 2017 has been made.
(iv) At the request of Mrs Jones, starting from the date in part (iii), the outstanding loan
is now to be repaid by monthly instalments equal to the quarterly instalments
calculated in part (i). In this new arrangement, the bank continues to charge the
same nominal rate of interest as agreed initially.
As a result, the remaining term of the loan is to be shortened. Further, the final
payment is then a reduced amount that clears the debt. Thus, working in monthly
time units, find:
(a) The revised date when the mortgage is to be cleared by Mrs Jones.
(b) The amount of the reduced final payment to the nearest pound.
(c) The total amount of interest saved by Mrs Jones following the restructuring.
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