John has completed an application for a 4-years personal loan for the amount of $26745. In the application, he indicated that the money would be used to repay (consolidate) various debts and to make a down payment on a car which he needs to buy for transportation to and from work.

John arrived in Australia two years ago. He has been living with his mum in his mums renting apartment. Two weeks ago he began working for Coles Ltd. as a store manager, and he plans to rent his own apartment at the beginning of next month. He has banked with you since he arrived in Australia and has an average credit rating.

His application was sent to Meri, a consumer lending officer at Monash Bank. After going over the application, Meri called John for a few details about his job, his new apartment and the car he was going to purchase. His net monthly income (after tax) is expected to be $6701 and good benefits. He was optimistic about his future job prospects.

John is expecting to rent an apartment for $1600 per month, and part of the Loan would be used for the first month, last month, and one-month deposit upfront. Another portion of the Loan was going to be used for a car which was selling for $30,000. The car dealer would finance him $25000 for 4 years at an annual interest rate 14%.

The remaining amount of the Loan was going to be used to pay off two utility bills (gas and water) and the $15,500 he owed to a credit union. John explained that his sister had an account with Monash Bank and if need be would be a guarantor for his Loan.

Meri worked on this loan application and considered that the interest rate to this loan would be 13% annually. Expected monthly expenses are: food $700, utility and car expenses $216 for each. Monash Bank has a minimum disposable income ratio of 20% for personal loans. [Note: Disposal income is the income net of all monthly expenses. Disposal income ratio is the disposal income over ones income.]

Answer the following questions 1(A) to 1(D):

1(A). What are the monthly payments of the loan under assessment and the car loan, respectively? (Keep two decimals on figures) (3 Marks)

PMT of Loan Under Assessment

Car Loan PMT :

1(B). What is Johns ratio of disposable income? (Keep two decimals on figures, do not present your answers in percentages) (2 Marks)

1(C). Should Meri recommend approval of the Loan, given the bank's policy? (2 Marks)

1(D). Should the bank require that Johns sister guarantee the Loan? Why or why not? (3 Marks)