Question

The interest rate of the loan that they have access to J12 = 4.92% p.a. Max repayment of $3000 per month for months 1 to 36 Max repayment of $1800 per month for months 37 to 96 Max Repayment of $1500 per month for months 97 to 120 A) Assuming they make the maximum payments that they have budgeted for, illustrate the cash flows associated with the loan as a fully labeled timeline diagram. (Assume the first repayment occurs one period after they take out the loan.) B) By breaking this cash flow into three simple annuities, determine the maximum amount that Kim and Lee can borrow if they are to pay off the loan in ten years. C) Assuming that Kim and Lee borrow the maximum amount that they can afford to pay back in ten years, construct an amortization table showing the last three payments.

Answer 1

Monthly interest rate=4.92%/12=0.41%

Present value of first 36 payment is given below:

Hence, for first set of cash flow the present value is $100217.16

Similarly, The value of second set of cash flow at 36 th month=$95568.77. Calculaton is given below:

Value of $95568.77 at 0 month=95568.77/(1+0.41%)^36=$82479.34

Similarly, present value of third set cash flow=$23103.39. Calculation is given below:

Hence, the amount of loan they can take=$100217.16+$23103.39+$82479.34=205799.9 or $205800(Approx). Below is the amortization schedule for last three month: