Keith will be starting a 6-month live in training course in 4 months’ time. His
mother, Karen, has promised him a living allowance of $300 per month to help
support him during this time. If the interest rate is 8 percent per annum,
compounding monthly how much money will Karen need to set aside today to
finance Keith’s allowance?
Pmt 300 Fv 1758.73
I 8/12 N 4
N 6 I 8/12
Comp pv pv 1712.60
Question 21
Ann borrowed $500,000 to purchase an apartment in Port Melbourne. The
loan requires monthly repayments over 15 years. When she borrowed the
money the interest rate was 6 percent per annum, but 2 years later the bank
increased the interest rate to 7 percent per annum, in line with market rates.
The bank tells Ann she can
• increase her monthly repayment (so as to pay off the loan by the
originally agreed date) (First Option) or
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• she can extend the term of the loan (and keep making the same
monthly repayments) (Second Option).
Calculate
a) The new monthly repayment if Ann accepts the first option;
PV 500,000
N 15 X 12
I 6/12
COMP PAYMENT $4219
PV 456,275
N 13 X 12
I 7/12
COMP PAYMENT 4463
b) The extra period to the loan term if Ann accepts the second option.
PV 456275
I 7/12
PAYMENT (4219)
COMP N 171.34/12 = 14.28 YEARS