Question: An essential aspect of continuous compounding is that : a. None of the above. b. It only applies to bonds that pay interest. c. There

An essential aspect of continuous compounding is that :

a. None of the above.

b. It only applies to bonds that pay interest.

c. There is an upper limit to the corresponding EAR no matter how large the number of within year compounding periods. d. Interest is earned on the reinvestment of previous interest payments.

You have just taken out a $400,000 mortgage to enable you to purchase your new home. The mortgage is an annual pay mortgage at an interest rate of 5% per year with a 25-year amortization. The interest rate is fixed for five years at which time a new interest rate will have to be negotiated. How much will be owing on the mortgage at that point in time?

a. $303,346

b. $353,690

c. $295,983

d. $325,685

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