Using the above information answer question6 below 2.1 Interest Compounding Ofte

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Using the above information answer question6 below

2.1 Interest Compounding Often, the interest of a loan is expressed as the annual rate, that is, the percent of the outstanding balance that is charged as interest over a year. However, the frequency with which the rate is applied to the current balance may vary. This frequency is how often the loan compounds. If the interest is compounded annually, the formula to calculate the amount of money owed after the first year is y(1) = (1 + r)(0) where y(t) is the outstanding balance after t years, and r is the annual interest rate. How would this change if, instead, the loan compounded semiannually? Then, half the interest rate would be applied to the loan value every 6 months. y(-5) = (1+ H) y(0) () - (11 ) w(5) - (1 ) (1+ H) y) = (1+H) wo) This pattern continues for any frequency of compounding. That is, if a loan is compounded n times per year, the value of the loan after 1 year is (1) - (1+ H)" y(0) The more frequently that a loan compounds, the higher the value at the end of the year. However, there is a limit as n goes to infinity. The limit, which models a continuously compounding loan, is: yle Y(0)e' t

Explanation / Answer

5.Calculate the monthly payment as follows:

$500,000=c (1-1/1.05^360)/0.05

                 C=13542000

6.Amount left to be paid after downpayment = 0.3x 450000= $135000

now,
A = P ( 1 + R/100)^30

Amount to be paid = A = $1944874.069

Instalment = A/(30 x 12) = $5402.428

7. If a person take 30 year fixed mortgage instead of 10 year motgage is having some advetages and some dis adventages

one of its adventage is its a fixed amount we can pay for every month. so, there is no risk and because of long term we can pay less amount then 10 year mortigage.

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