Answer to Question #205935 in Financial Math for Arvin Shopon

Question

1. Aini can cope with a maximum monthly loan management cost of EUR 1,600. What is the largest possible flat-rate loan that Aini can take? The loan is repaid monthly for 20 years and has an interest rate of 2.00%.

2. Jason intends to take out a 20-year flat-rate mortgage. The loan is tied to the six-month Euribor and the loan margin is agreed to be 1.20 percentage points. At the time of borrowing, the six-month Euribor is 0.204%. Jason estimates that his finances will last a maximum of 1,000 euros per month.

a) What maximum loan can he take if the reference rate does not rise during the loan period?

b) What is the maximum amount of a loan he can take if the reference rate rises to 5% after six months of payments?

Answer 1

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