You plan to borrow $1,000,000 for buying a house. You have decided to go with bank XYZ which offers you an interest rate of 5% with daily compounding.
1.) Assume that you pay for the loan over 25 years and you make an equal payment at the end of each month. What will be the monthly payment?
2.) Assume that you have made the regular payments as planned and the interest rates have not changed over the first 15 years, how much would you owe the bank after 15 years?
3.) Assume that you have just realised that the bank requires an application fee of $900 before the approval of the loan. What is the actual effective interest rate you are paying on your loan?
4.) Suppose that you can make the following deal with bank XYZ: You pay for the loan over 25 years and you make an equal payment at the end of each quarter. Assume there is no application fee. What will be the quarterly payment?