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Effective annual and monthly rates of interest

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Suppose your parents wish to buy a house whose current market value is $150,000. They have approached a loan officer at the Bank of Nova Scotia who offers them 25-year mortgage financing for 75% of the purchase price at an annual rate of 6.75%. Payments are to be made on a monthly basis even though the bank is required by Canadian laws to compound the interest semi-annually.

(a) What are the effective annual and monthly rates of interest on the loan?

(b) Assuming the loan payments are due at the end of each month: (i) determine the amount of the monthly loan payments (ii) determine the amortization schedule for the first 3 months (iii) determine the principal outstanding at the end of the 5 year. How much interest has been paid over the 5 years?

Reference no: EM133060272

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