Question

You borrow $540,000 to buy a house worth $600,000.

The interest rate is 2.4% pa compounding monthly and the fully amortising loan term is 30 years. A loan repayment schedule is shown below, with some parts missing in bold.

Loan Repayment Schedule
Interest rate of 2.4% pa paid monthly, 30 year term
Time	Total payment	Interest component	Principal component	Liability, just after payment
Month	$/month	$/month	$/month	$
0				540,000.00
1	2,105.68	(a)	(b)	?
2	2,105.68	1,077.95	1,027.73	537,946.58
3	2,105.68	1,075.89	1,029.79	536,916.79
4	2,105.68	1,073.83	1,031.85	535,884.94
5	2,105.68	1,071.77	1,033.91	534,851.03
6	2,105.68	1,069.70	1,035.98	533,815.05
7	2,105.68	1,067.63	1,038.05	532,776.99
8	2,105.68	1,065.55	1,040.13	531,736.86
…
356	2,105.68	20.93	2,084.75	8,380.79
357	2,105.68	16.76	2,088.92	6,291.87
358	2,105.68	12.58	2,093.10	4,198.77
359	2,105.68	8.40	2,097.29	2,101.48
360	2,105.68	(c)	(d)	(e)

Which of the below statements is NOT correct? All answer options are rounded to 2 decimal places as is the table above.

Select one:

a. The interest component at month 1 is $1,080.00.

b. The principal component at month 1 is $1,025.68.

c. The interest component at month 360 is $4.20.

d. The principal component at month 360 is $2,101.48.

e. The amount owing just after the payment at month 360 is $4.20.

Answer 1

Computation of Interest component in month 1 = Loan Balance * Interest Rate / 12 = $540000 * 2.40% / 12 = $1080.00

Computation of Principal component month 1 = amount paid - interest = $2105.68 - 1080 = $1025.68

Computation of Interest component in month 360 = Loan Balance * Interest Rate / 12 = $2101.48 * 2.40% / 12 = $4.20

Computation of Principal component month 360 = amount paid - interest = $2105.68 - 4.20 = $2101.48

***Option E is the answer cause it is not correct***