Anna has requested your advice in relation to her goal of purchasing a house. Anna is comfortable living in her apartment but it is too small for visitors to stay. With a house, there will be plenty of space to accommodate friends and family for extended stays.

Anna would like to buy a house in the next few years. The market price for a suitable house is approximately AUD1.1 million.

The bank has indicated to Anna that it would likely approve a loan for 70% of the purchase price. This means Anna must fund the remaining 30% of the purchase price from her own cash.

Anna prefers to not sell her apartment and, after purchasing the house, intends to keep it as an investment property. As an investment property, the estimated rental income will be more than adequate to continue to service the existing loan.

As a partner in the consulting firm, Anna is entitled to an annual bonus payment. The amount of the payment depends upon the financial performance of the firm for the year. Typically, the annual bonus is approximately AUD50,000 per partner.

If Anna allocates the annual bonus to a savings plan, how many years will it take to achieve the required deposit. Assume the annual bonus payment is AUD50,000 each year, the first bonus payment is in 12 months time and the interest on the savings account is 3.5% per annum. (2 marks)

The proposed new loan will be interest plus principal, monthly repayments, an interest rate of 5% and a term of 20 years. What is the monthly repayment. (2 marks)

Anna is interested in the scope to accelerate the repayment of the loan. If Anna increased the monthly repayment by AUD1,000 per month, what would be the revised term of the loan (ignore the annual bonus and show the answer in months). (2 marks)

Alternatively, Anna could sell the apartment and use the proceeds of sale to repay the existing bank loan and use the surplus as the deposit on the house. Identify the key differences arising from this alternative in comparison with the original bank proposal. (4 marks)

With reference to the results of your analysis above, make a recommendation to Anna. In your response clearly set out your reasons. (2 marks)