Mathematics for Business and Economics 2017/18

Seminar 9 (November 30)

Exercise 1
We applied for a A
C 15,000 loan to buy a car. We agreed to repay the debt with a five-year
sequence of monthly installments, where the first installment is due in one moth. The
annual interest rate is 5.50 % and conform monthly compounding is used by the bank.
a) Find the installment.
b) Find the percentage increase in installment, if a four-year loan was used instead of
a five-year loan, other things being equal.

Exercise 2
A construction company starts building new housing. To start the construction, it takes
out a AC 2,000,000 mortgage and agrees to repay the debt in eight equal semiannual
installments. The bank uses an interest rate of 4 % per year and relative quarterly com-
pounding.
a) Find the installment if the first one is to be paid six months after taking the mort-
gage.
b) The bank offers the company a deferred mortgage. Here the first out of eight in-
stallments is to be paid four years after taking the mortgage. Find the installment,
corresponding to the deferred mortgage.