(Dick London 1.12) A 10 year adjustable rate mortgage loan of 23115 is being repaid exactly with quarterly installments of 1000 based on an initial interest rate of 12% compounded quarterly. Immediately after the 12th payment, the interest rate of 12% is increased to 14% compounded quarterly. The quarterly installments remain at 1000, so the term of the loan must be different.

Calculate the loan balance immediately after the 24th payment.

• 12,000
• 12,550
• 12,950
• 13,350
• 13,750

References

Hlynka, Myron. "University of Windsor Old Tests 62-392 Theory of Interest". web2.uwindsor.ca. Retrieved November 23, 2023.

Solution: E

Prospectively [math]L *=1000 a_{\overline{28} \mid .03}=1000(18.76411)=18764.11[/math]. is OB of loan after 12 payments. Loan balance after the 24 th payment (extra 12 payments) is (retrospectively) [math]18764.11(1+.035)^{12}-1000 s_{\overline{12} \mid .035}=13751.90[/math]

References

Hlynka, Myron. "University of Windsor Old Tests 62-392 Theory of Interest". web2.uwindsor.ca. Retrieved November 23, 2023.