Mr. Preston is interested in buying a house which costs $80,000. However Mr. Preston is ready to buy the house in 5 years time, not immediately. He expects housing prices to increase by 4 percent per year over the next 5 years. In five years time, Mr. Preston plans to pay $20,000 down payment and loan the remaining sum from the bank. Repayment will be over the next 25 years in equal monthly payments that included principal payments plus 9 percent compound interest on the unpaid balance.

How much will the house cost by the time Mr. Preston is ready to buy it? (3 marks)

What will be the monthly repayment on the loan over the next 25 years? (6 marks)

In determining how much to lend to Mr Preston, the bank will do a Credit Analysis. Explain what is a Credit Analysis and outline 2 information that Mr Preston will likely be asked to provide as part of this analysis. (3 marks)

When assessing such loan applications, banks could make 2 types of errors. Explain.