Adriana is 22 years old, risk neutral, and would like to save a deposit to buy her first home close to her family in Yarraville, by the age of 29. The average one bedroom flat price in this area is $380,000, with a growth rate of 5% per annum compounded annually. Stamp duty is 4%. And a deposit of 20% is recommended when financing a purchase.

 

1. Assuming that property prices grow, how much money will she need to put into her bank account per weekover the next 7 years to afford the recommended deposit and stamp duty for an average flat in Yarraville? Assume that she currently has an account balance of $10,000, savings account interest rates will remain stable at 0.35%, and interest is compounded weekly.

1. If Adriana is successful in her loan application in 7 years' time, calculate her monthly loan repayments if the loan term is 25 years and the annual variable home loan interest rate is 3.5% compounded monthly.

1. Assume that Adriana finds the repayments in part b) too excessive before signing her application and can only afford to pay $2,000 per month. How much could she borrow, given her lower budget, and what is the maximum value of the loan she can afford? Again, assume an annual variable loan interest rate of 3.5% and monthly compounding for 25 years.

Assume that in the future, Adriana receives an inheritance of $300,000 from her parents when they die. She would like to use that money to build a small investment property. It will take exactly 1 year to build. Net rental income is expected to be $15,000 per year at the end of years 2 to 6. Net rent will increase to $17,000 per year at the end of years 7 to 14. Adriana would like to sell this property at the end of the 14^thyear. The property value of $300,000 is expected to grow by 4% per year from the time it is built. If Adriana has a discount rate of 7%?

Calculate the Net Present Value (NPV) and explain whether this investment is suitable for her. Ignore stamp duty and applicable tax deductions.