Reference no: EM132998682
a) Sam has just started his medicine course at the university and his parents have promised him an annual allowance of $15,000 starting today, with the last payment to be received eight years from today. If the bank pays an interest rate of 5% per annum compounded annually, how much money will Sam have in his bank account at the end of year 9 from the accumulated annual allowance?
b) Assume it is now the end of Year 9 (i.e. today), Sam decides to buy a house.
i) He approaches National Australia Bank for a fully amortized home loan and is presented with two options:
-Option 1: A Nominal Rate (Annual Percentage Rate or APR) of 6.2% per annum and repayments to be made at the end of each quarter.
-Option 2: A Nominal Rate (Annual Percentage Rate) of 6.0% per annum and repayments to be made at the end of each month. Calculate the Effective Annual Rate (EAR) and identify which is the better option for Sam.
ii) Given the loan option made in part b) i), Sam decides to take up a 30-year mortgage loan. If the price of the house is $900,000 and Sam intends to use the accumulated sum of the annual allowances from his parents (i.e. the answer to part a)) as a deposit, what would his periodical mortgage repayments be?
c) Ten years after taking up the 30-year mortgage loan, Sam has to move to another city.
i) What is his outstanding mortgage balance?
ii) If the price of the house after 10 years has now gone up to $1,500,000 and Sam decides to sell the house and pay off the outstanding balance of his mortgage as calculated in part c) i), how much money (if any) would he have left?
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