Question 1: (0 points) Case Study 1 To complete the case study, read the scenario, then complete the tasks that follow it. Scenario Two years ago, Yuki and Thea purchased their first home for a purchase price of $696,800, which they paid with a $69,300 down payment and a $627,500 mortgage. At that time, Yuki and Thea both had student loans and needed to borrow money from their parents to fund most of the down payment. Yuki's parents lent them $15,500 at 0% interest, with the expectation that the loan be paid back in five annual payments of $3,100, made at the end of each year. Thea's parents lent them $23,500 at 2.5% simple interest. They agreed that Yuki and Thea would make payments of $4,700 plus interest at the end of each year for five years, with the first payment due two years from the date of the loan. The purchase of the house was a good decision. As a result of a strong real estate market, Yuki and Thea now have $130,000 of equity in their house. Unfortunately, after purchasing the house, Yuki and Thea made some poor financial decisions that resulted in substantial credit card debt. This included using their credit cards to make purchases that they could not afford and using cash advances to make payments on their various loans. A summary of Yuki and Thea's loans and credit card debts as of the first day of year 3 since the house purchase is shown in the table below. All interest rates are simple interest. Debt Yuki's parents Current Balance $9,300 Simple Interest Rate on Debt Monthly Payment 0% Thea's parents $18,800 2.5% Yuki's student loan $9,500 Prime + 3% $300 Thea's student loan $10,500 Prime + 3% $250 Credit card 1 $7,000 27% Minimum 5% of balance plus interest Credit card 2 $12,000 18% Minimum 3% of balance plus interest Credit card 3 $5,500 18% Credit card 4 $4,750 2% Minimum 3% of balance plus interest $200 plus interest Yearly Payment $3,100 $4,700 As Yuki and Thea are at ends trying to pay their bills, they reach out to their local not-for-profit credit counselling society for help. After reviewing Yuki and Thea's case, their credit counsellor proposes the following course of action: • Leverage the equity in Yuki and Thea's home to obtain a home equity line of credit (HELOC). The credit counsellor can help Yuki and Thea acquire a HELOC with payments of $300 plus interest per month, with a simple interest rate of prime + 3%. • Use the HELOC to pay off the credit card balances and loans that carry a higher interest rate than the HELOC and close the associated accounts so no further debt can be accrued. Convert all remaining loans to a monthly payment schedule. Tasks As an intern working for the credit counselling society, you've been tasked with working out the details for Yuki and Thea's debt consolidation plan, which you will then present in a written report. Your tasks are as follows: 1. Find and report the current Bank of Canada prime rate, including the date and the source you used. (5 marks) 2. Calculate the equivalent payment that would be necessary to pay off the loans from Yuki and Thea's parents if the loans were to be paid off today using the HELOC. Also, calculate the monthly payments on each of the loans from Yuki and Thea's parents, given that the loans are paid back with monthly payments over the original time frames of the loans. (5 marks) 3. For each student loan and credit card balance, calculate the current monthly payments and interest charges on the debts. (5 marks for each student loan and credit card; total: 30 marks) 4. For each student loan and credit card balance, calculate the monthly payments and interest charges on the debt that would result from using the HELOC to pay off the current balance. (5 marks for each loan and credit card; total: 30 marks)