Question

Q1:

Jill borrows $300,000 for 10 years at a fixed interest rate of i % p.a (EAR). If the loan is repaid in 10 equal year-end payments over the 10 years, the amount of the loan outstanding at the end of the 5^th year will be:

Select one:

a. Equal to $150,000

b. Less than $150,000

c. Greater than $150,000

Q2:

Jack deposits the following amounts in a savings plan which pays 5.4% per annum, compounded monthly:

• $2435 today,
• $1400 at the end of year two and
• $2600 at the end of year three.

The amount he will have in exactly 3 years is closest to:

Select one:

a. $6939.68

b. $6789.55

c. $7021.47

d. $6926.75

Answer 1

Part A:

In the Amortization Schedule, In the intial Years, more part of instalment will be adjusted towards Int. Thus lesser amount will be adjusted towards principal amount.

Hence after 5 Years, there will be morethan $ 150000 outstanding.

Part B:

Future Value = sum [ CF * FVF ]

FVF = (1+r)^n

r is Int rate per month

n = Balance period in Months

Year	CF	Bal Period	FVF @0.45%	FV of CF
0	$ 2,435.00	36	1.1754	$ 2,862.18
2	$ 1,400.00	12	1.0554	$ 1,477.50
3	$ 2,600.00	0	1.0000	$ 2,600.00
FV after 3 Years	$ 6,939.68

OPtion A is correct.