NENT FOUR

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