Question

A couple is planning to purchase a house in Nepean for a price of $350,000. They are planning to pay a down payment of $75,000 and would finance the remainder by a mortgage of $275,000 (i.e. $350,000 - $75,000 = $275,000). They are considering a 20-year mortgage, with bi-weekly payments. The quoted rate would 3.5 percent, semi-annual compounded. Calculate the following:

Question 31 (1 point)

What would be the Effective Annual Rate? (1 mark)

Question 31 options:

	3.557%
	3.561%
	3.531%
	3.5%
	None of the Above

Question 32 (1 point)

Saved

What would be effective bi-weekly rate? (1 mark)

Question 32 options:

	0.134%
	0.29%
	0.067%
	1.75%
	None of the Above

Question 33 (1 point)

How many bi-weekly, mortgage payments would they pay during the 20-year period? (1 mark)

Question 33 options:

	1040
	240
	480
	520
	None of the Above

Question 34 (1 point)

How much would their bi-weekly mortgage payments be? (1 mark)

Question 34 options:

	$732.91
	$1,338.21
	$488.73
	$366.77
	None of the Above

Question 35 (2 points)

How much interest would they have paid during the total 20-year period (Hint: (number of payments * amount of payments) minus loan amount)?

Question 35 options:

	$106,111.35
	$105,814.88
	$106,238.49
	$106,347.57
	None of the Above

Answer 1

Ans 31

Effective Annual Rate = (1 + Nominal interest rate/ No. of compounding periods)no. of compounding periods - 1

= (1+ 0.035/2)2 - 1

= 0.03531

= 3.531 %

Ans 32

Effective Bi-Weekly rates = (1.0175)2/26 - 1

= 0.00134

= 0.134%

Ans 33

No. bi-weekly mortgage payments= No.of bi-weekly mortage payment a year x No. of years

= 26 x 20

= 520

Ans 34

Bi -weekly payments in amounts

=(Loan Amount x EBWR) x {(1+ EBWR)No. of BWMP} / {(1+ EBWR)No. of BWMP - 1}

= (275000 X 0.00134) X {(1.00134)520 } / {(1.00134)520 - 1}

=368.5 X 2.0064/1.0064

= 368.5 x 1.9936

= 734.64

= 732.91 (approximately)

Note : 1. Diiference in ans is due to round off as 0.00134 is not exact figure. It is rounded off.

2. EBWR = Effective Bi-Weekly rate

3.BWMP = Bi weekly mortgage payment

Ans 35

(number of payments * amount of payments) minus loan amount

= (520 X 732.91 ) - 275000

= 106113.20

=106111.35 (approximately)

Note : Diiference in ans is due to round off