Throughout this assessment you will need to consider y years. To calculate y, you will use your student ID number. Let r be the integer remainder after dividing your student ID number by 25. Let y = r + 20. For example, if the ID number is 12345678, then 12345678 = 493827×25+3, r = 3 and y = 23. You should use this value for y throughout the assessment.
Today is 1 January 2019. MQU bank is offering a y year $1,500,000 loan product from the beginning of 2019 to its customers.
a. This loan product requires customers to make monthly repayments. Payments will be made at the beginning of each month with an amount of $9,000. Use the Goal Seek to find the implied annual nominal rate of interest payable monthly (i.e., j12) charged by MQU bank. Assume that there is an annual fee of $500 paid on 1 January of each year for the first 10 years (the first one is paid on 1 January 2019) and there is an annual fee of $1000 paid on 1 July of each year for the remaining term of the loan. The first loan payment is made today.
b. For this loan product, each customer has an option to choose a 3-year interest-only period. Here is the option detail
- Customers can borrow $1,500,000 on 1 January 2019 and make the repayments that only cover the interest on the borrowed amount (i.e., $1,500,000) during the interest-only period (i.e., first three years). The interest rate is j12 = 6% for the interest-only period.
- After the interest only period, customers’s repayments will be paid at the beginning of each month with an amount of $9,500 for the remaining y− 3 years.
- Assume that there is an annual fee of $700 paid on 1 January of each year during the loan term (i.e., y years). The first one is paid on 1 January 2019
Calculate the monthly repayment amount for the interest-only period and use the Goal Seek to find the implied annual nominal rate of borrowing cost payable monthly (i.e., j12) charged by MQU bank.
c. Based on the result of part b, find the following equivalent nominal interest rates: j2, j4 and j365. Use a bar or column chart to plot these rates.
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