Jonny takes out a loan of $10000 today to start a lawn mowing business. He will repay
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Question:
Jonny takes out a loan of $10000 today to start a lawn mowing business. He will repay the loan monthly and the repayments will be made one month from today. The repayments for the first 5 years will cover interest only, and after 5-year interest-only period, Johnny will make equal monthly payments that will fully repay the loan after an additional 15 years (i.e. 20 years from today, the loan will be fully repaid). The interest charged is 5% p.a. effective.
a) Calculate the equivalent effective monthly rate on the loan.
b) Calculate the size of the first repayment due exactly one month from now.
c) Calculate the size of the level repayments that occur after the initial 5-year interest-only period.
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