Mr. Vinnie Totti is seeking to purchase an apartment for $200,000. The Wakpak Bank is prepared to lend Vinnie 75%

of the purchase price with the remaining amount to be funded from personal savings. The loan repayments to

Wakpak are to be made monthly (with the first payment due one month after the loan is provided) for a term of 15

years, and the stated annual interest rate quoted by Wakpak is 9.25% p.a. compounded monthly

What will be the amount of Vinnies monthly loan repayments?

2

b

Immediately after paying the 36th loan repayment, Vinnie wishes to pay out the loan in

full. How much will be needed to pay out the loan at this time?

2

c

(i) Discuss whether there are benefits to Vinnie from changing the frequency of loan

repayments from monthly to fortnightly (with each repayment now being 50% of the

monthly payment calculated in part a) of this question), as has been suggested by his

colleagues at the local produce market where he works on a casual basis as a delivery

driver. (Students should write no more than 100 words for this part of the question).

(ii) Would there be any disadvantages to Vinnie arising from increasing the frequency

of making loan repayments from monthly to fortnightly as indicated in part c) (i) of this

question? (Students should write no more than 100 words for this part of the question).

4

3

d

(i) Using the information provided at the start of this question (including the interest rate

of 9.25% p.a. compounded monthly), however Vinnie commences to make loan repay

ments which were now equal to an amount of 50% of the repayment calculated in part

  1. a) of this question. Also, the loan repayments were now made at the commencement of

each fortnight (that is, the first repayment would be made at the date of the loan and

fortnightly thereafter). Given this information, over what approximate total term (ex

pressed in years and months) would Vinnie now repay the loan in full?

(ii) Ignoring the amount of the final loan repayment to reduce the loan balance to nil,

approximately how much interest would Vinnie save (expressed in nominal dollars) by

undertaking the repayment strategy in part d) i) of this question, as compared to making

end-of-month loan repayments over a term of 15 years

(as calculated in part a) of this question)?

(iii) Given the new loan repayment strategy in part d) i) of this question, what would be

the amount of the final repayment required to reduce the loan balance to nil? Assume

that the final repayment will be made 1 fortnight after the last regular fortnightly repay