You have just passed ACST1001 and started a summer internship at Harrison Bank, with Peter as your supervisor. As your first task, Peter has given you some client accounts and asked you to verify some of the details.

The first file is for a client named Mary, who has a mortgage with the bank. You go through the file and note the following information for Mary's mortgage

Initial loan: $640,000

Term of loan: 25 years

Repayment frequency. End of each fortnight

Interest rate on loan: 112=7.6%

Using this information, determine the following:

What is the periodicity needed given the above information?

O a. Yearly, since the term of the loan is measured in years

O b. Daily, since there are exactly 365 days in a year (ignoring leap years)

Oc Monthly, since the 7.6% is a nominal annual rate compounding monthly

O d. Fortnightly, since the repayments are fortnightly

Solutions

Expert Solution

The correct option is (d).

d. Fortnightly, since the repayments are fortnightly.

Explanation:

The repayment of instalments as computed below.

Loan amount	640,000.00
Interest rate	0.08
Loan term (in years)	25.00
Payments (per year)	24.00
Number of periods	600.00
Periodic (Fortnightly) rate	0.0032
Fortnightly loan Payment	2,384.37
Total payments made to bank	1,430,619.03
Total interest paid	790,619.03

The correct option is (d).

Nabeel answered 1 year ago

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