Exactly 15 years ago, a householder took out a loan of £100,000 to be repaid by level monthly

instalments payable in arrears for 25 years.

a) Calculate the level monthly instalment using a rate of interest of 5% per annum convertible

monthly.

b) Calculate the interest component of the monthly instalment now due (i.e. at the end of year

15).

c) Calculate the capital outstanding immediately after payment of the monthly instalment now

due.

The householder has recently received an inheritance of £25,000.

d) Calculate the lower monthly instalment payable for the remainder of the loan, assuming that

the householder uses the full amount of the inheritance to immediately reduce the capital

outstanding.

Assume that the rate of interest and the original term of the loan remain unchanged.

e) Alternatively, after using the inheritance to immediately reduce the capital outstanding, the

householder may choose to continue to pay the original monthly instalment calculated in a)

above, with the remaining term of the loan reduced accordingly.

Calculate the revised remaining term of the loan and the lower instalment amount payable

in the final month in this case.

Assume that the rate of interest remains unchanged.