Helen is Considering Taking Out a Loan to Buy an Investment Property - Accounting Assignment Help

Assignment Task

Assignment Questions

Helen is considering taking out a loan of $80,000 to buy an investment property in rural NSW. The details for the loan are as follows:

• Repayments will be made on a monthly basis. However, the first repayment will be made exactly THREE months from today.

• The loan will be repaid by 240 level repayments

• The interest charged on the loan is currently 6% p.a. effective Using this information, answer the following questions.

a) State clearly the type of effective rate that should be used in an annuity formula for Helen’s loan as described above (e.g. “effective quarterly rate”, “effective weekly rate”, etc.). Then determine the value of this effective rate. (1 mark)

b) Draw a cash flow diagram for Helen’s loan described above, and then determine the size of the level repayment for Helen’s loan. (2 marks) c) If the interest rate charged on Helen’s loan was instead 6% p.a. compounding monthly, would her repayments be larger or smaller? Justify your answer. (1 mark) (CONTINUED ON NEXT PAGE) 1 Helen’s husband, Jake, is also considering buying an investment property, but in Adelaide instead. Jake has calculated that he needs to borrow $450,000 from the bank to fund this purchase. The details for his loan are as follows:

• The repayments for this loan will be made on a FORTNIGHTLY basis, the first payment being exactly 2 weeks from today. For the purposes of this assignment, assume there are EXACTLY 26 fortnights per year.

• The loan will be repaid over 30 years with level repayments.

• The interest charged on the loan is 5% p.a. compounding half-yearly

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