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Payments are to be made on a monthly basis even though the

Suppose your parents wish to buy a house whose current market value is $150,000. They have approached a loan officer at the Bank of Nova Scotia who offers them 25-year mortgage financing for 75% of the purchase price at a rate of 6.75%. Payments are to be made on a monthly basis even though the bank is required by Canadian laws to compound the interest semiannually.

(a) What are the effective annual and monthly rates of interest on the loan?

(b) Assuming the loan payments are due at the end of each month:

(i) determine the size of the monthly loan payments

(ii) determine the amortization schedule for the first 3 months

(iii) determine the principal outstanding at the end of the 5th year.

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Financial Management: Payments are to be made on a monthly basis even though the

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