2017 J2mes Ruse Agricultur:tl HS 2 U

A home loan of $600 000 is borrowed from a bank at a rate of 6% p.a. on the 1st of
January 2017 over I 0 years, compounded monthly. Interest is charged at the beginning of
each month (including immediately when the loan was taken), while repayments are made
at the end of every month. Let M be the amount of each monthly instalment.

Let In represent the amount owing after the nth repayment.

1. Show that In = 6oooooc~~~r - 200M[G~~f - 11

3

11. The loan is to be paid back over I 0 years. Show that M = 6661.23 2

111. The bank reduced its interest rates from 6% p.a. to 5% p.a. on the I st of January 1
2022. Find, to the nearest cent, the amount owing just before the rate changes.

1v. Denote your answer in part ii i. as 'A' for this question.

If the repayment stays the same and taking into account the rate change, in which 3
year and month can the loan be expected to be paid off?

Hint: Do all your working out in terms of A and M, only substitute your answers
from ii. and iii. at the end.

v. Due to the rate change in part iii, the bank requires the last payment to only pay off 2
the remaining balance as opposed to the usual instalment amount. How much
interest in total will the borrower have paid over the life of the loan?
h.ills-gr2mm:rr-2u-2 014'

Tina borrows $5000 at 1.5% per month reducible interest and pays the loan off in equal 3
monthly instalments. Tina is to repay the loan in 3 years.
Calculate the value of each monthly instalment.
2017 Sydney Boys HS 2U

Ross decides to borrow $150 000 to buy a luxury car.

For a 10-year loan, interest is compounded monthly on the balance still
owing at a rate of 9% p.a.
The loan is to be repaid in equal monthly repayments of $Mat the end
of each month.
Let A11 be the amount owing at the end of n months.

(i) Show that ~ =150000(1.0075) 2

- M(l + 1.0075) (1)

(ii) Write down an expression for A11 in terms of M . (1)

(iii) Calculate the value of M to 2 decimal places (2)

(iv) At the end of the 5th year, the interest rate changes to 8% p.a. (3)
compounding monthly.
Assuming he does not change his repayments, how much sooner
will he be able to pay off the loan?
(Answer to the nearest month)