For the following problem, give answers correct to five significant figures for calculations of R
in your answers be sure to define annuities and perpetuities in context.
a.
b.
For an investment of $550 000, an annuity with an interest rate of 5.39% p.a. will give
a greater monthly payment than a perpetuity with an interest rate of 5.4% p.a.
Assume that the annuity will last 20 years.
Compare an annuity and perpetuity: compare the two options, suggest which option is
better, include calculations and justify your answer.
A housing loan of $380 000 is taken out for 15 years. Interest is charged at 9% per
annum adjusted (compounded) monthly. The debt is to be repaid in monthly
instalments. Complete the amortisation table for the first five months, assuming
$3854 is paid each month.
Payment Number Payment Made Interest Paid
($)
($)
0.00
0.00
3854.00
n
241
0
1
2
3
4
5
Total
Principal Reduction
($)
0.00
Balance Remaining
(5)
380 000.00
378 996.00
Fig: 1