Reference no: EM133239633

1. On the first of May 2015 Lee and Kim borrowed $250,000 from the Eastside Bank in order to buy an apartment. The loan was to be repaid through 180 monthly payments over a period of 15 years, with the first payment due on the first of June 2015, and each payment being the same size. The interest rate charged by the Eastside Bank was j12=5.04% p.a.

a) Illustrate all the cash flows associated with this loan as a fully labelled timeline diagram.

b) Determine the size of the monthly payments. Enter this value to the nearest cent

c) Describe and carry out two sanity checks on your answer to part b).

d) Determine the size of the outstanding principal immediately after Lee and Kim's 20th payment. Enter this value to the nearest cent

e) If the interest rate charged by the Eastside Bank increases to j12 = 5.52% p.a. immediately after Lee and Kim's 20th payment, determine how many more payments it will take to pay off the loan, assuming that Lee and Kim don't change their payment size.

f) Determine the size of the partial payment.

g) Describe and carry out a strong sanity check on your answer to f).

h) Construct an amortization schedule, showing the last 3 payments (i.e. two full payments and a partial payment). Ensure that you include example calculations for one line of the schedule, and that you show how you got the starting OP for the table