Today is 1 January 2020. Jake just used $400,000 ($200,000 is from Jake’s own investment and $200,000 is raised by taking a 5-year loan) to purchase a cafe fran- chise. To operate this business, Jake needs to pay rent, maintenance costs, labour costs and loan repayments.

  • Jake took a 5-year $200,000 loan from MQ bank. Jake needs to make 60 monthly repayment with an amount of $3,800. The loan repayment will be paid by the end of each month. This package has an annual fee of $200. The package fee is paid on 30 June of each year during the following five-year period. The first one will be paid on 30 June 2020. This loan will be fully repaid by the end of 5 years.

    UseGoal Seek to find the implied annual nominal rate of interest payable monthly (i.e.,j12) charged by MQ bank for this 5-year loan. Label this sheet as “Part a”.

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    1. b)Jake has also been offered an option to switch his loan to a new package. Here are the details of this package.
      • Under this new package, Jake will make 60 monthly repayments at the end of each month.
      • Jake can have a one year interest-only-period at the beginning of the loan. Jake’s repayments will be interest-only1for the first year (i.e., first 12 payments will be interest-only payments), followed by payments of principal plus interest for the following 4 years.
      • During the interest-only period, the interest rate will bej12= 6% which means Jake needs to repay 6%/12*200000 by the end of each month.
      • Under this new package, Jake needs to pay $4,600 by the end of each month after the interest-only period.
      • This package has an annual fee of $400. The package fee is paid by the end of January of each year during the following five year period (from 1 January 2020 to 31 December 2024).

        UseGoal Seekto find the implied annual nominal rate of interest payable monthly (i.e.,j12) charged by MQ bank for this new loan package. Use a bar or column chart to compare the loan repayment amounts (including annual fees) of the original package and the new package over 5 years. Plot 60 monthly payments for both the original package and the new package. Should Jake switch to this package? Label this sheet as Part b.

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