riya and Ronnie borrow $500,000 from the EastSide bank, to be paid back through monthly repayments over 12 years, with the first repayment to occur one month after taking out the loan. EastSide charges at interest j12 = 6.12% p.a. Under the terms of the loan, Priya and Ronnie will pay interest only for the first 2 years of the loan. At that point the loan will change to a fully amortized (principal and interest) loan, which will apply for the final 10 years of the loan’s duration. a) Illustrate the cash flows associated with loan as a fully labelled timeline diagram. b) Determine the size of the monthly repayments during the first two years of the loan. c) Determine the size of the monthly repayments during the last 10 years of the loan. d) Find the Outstanding Principal immediately after Priya and Ronnie’s 141st repayment. e) Construct an amortization schedule showing the last 3 repayments. [Ensure that you show your working for one line of the amortization schedule.] f) Describe and perform and sanity check on your amortization schedule. g) If Priya and Ronnie simply took out a 12 year P&I for $500,000 at j12 = 6.12% p.a. and intended to make monthly repayments of $2400, attempt to determine how long they would take to pay off the loan. Explain why your attempt to answer the question was problematic.
riya and Ronnie borrow $500,000 from the EastSide bank, to be paid back through monthly repayments over 12 years, with the first repayment to occur one month after taking out the loan. EastSide charges at interest j12 = 6.12% p.a. Under the terms of the loan, Priya and Ronnie will pay interest only for the first 2 years of the loan. At that point the loan will change to a fully amortized (principal and interest) loan, which will apply for the final 10 years of the loan’s duration. a) Illustrate the cash flows associated with loan as a fully labelled timeline diagram. b) Determine the size of the monthly repayments during the first two years of the loan. c) Determine the size of the monthly repayments during the last 10 years of the loan. d) Find the Outstanding Principal immediately after Priya and Ronnie’s 141st repayment. e) Construct an amortization schedule showing the last 3 repayments. [Ensure that you show your working for one line of the amortization schedule.] f) Describe and perform and sanity check on your amortization schedule. g) If Priya and Ronnie simply took out a 12 year P&I for $500,000 at j12 = 6.12% p.a. and intended to make monthly repayments of $2400, attempt to determine how long they would take to pay off the loan. Explain why your attempt to answer the question was problematic.
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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Priya and Ronnie borrow $500,000 from the EastSide bank, to be paid back through monthly repayments over 12 years, with the first repayment to occur one month after taking out the loan. EastSide charges at interest j12 = 6.12% p.a. Under the terms of the loan, Priya and Ronnie will pay interest only for the first 2 years of the loan. At that point the loan will change to a fully amortized (principal and interest) loan, which will apply for the final 10 years of the loan’s duration.
a) Illustrate the cash flows associated with loan as a fully labelled timeline diagram.
b) Determine the size of the monthly repayments during the first two years of the loan.
c) Determine the size of the monthly repayments during the last 10 years of the loan.
d) Find the Outstanding Principal immediately after Priya and Ronnie’s 141st repayment.
e) Construct an amortization schedule showing the last 3 repayments. [Ensure that you show your working for one line of the amortization schedule.]
f) Describe and perform and sanity check on your amortization schedule.
g) If Priya and Ronnie simply took out a 12 year P&I for $500,000 at j12 = 6.12% p.a. and intended to make monthly repayments of $2400, attempt to determine how long they would take to pay off the loan. Explain why your attempt
to answer the question was problematic.
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