Question: Question 3 (Total: 25 marks) A simplified constant payment mortgage (CPM) loan of 450,000 is negotiated between a bank and a borrower. The loan is

Question 3 (Total: 25 marks) A simplified constant payment mortgage (CPM) loan of 450,000 is negotiated between a bank and a borrower. The loan is to be repaid in 25 years, its APR is 4.5% and payments are made annually. Required: (a) What is the annual payment for the loan? (5 marks) (b) What is the loan balance at the beginning of year 3 and year 23 respectively? (4 marks) (c) What is the amortisation of the loan in year 3 and year 23 respectively? (4 marks) (d) What is the interest payment of the loan in year 3 and year 23 respectively? (4 marks) (e) Discuss briefly why annual amortisation is so much greater in year 23 than that in year 3 for CPM loans. (250 +20% words approximately). (8 marks) (Total: 25 marks)

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