Nicole & Lu Chen are considering buying a detached house in Ajax. Their combined gross income is $220,000. They have no savings. They just bought a car. To finance the car purchase they took a 4 year $50,000 loan at an interest rate of 3% compounded monthly. They have a furniture loan which requires a monthly payment of $1000 for the next five years. Their goal is to buy a house in 4 years financed with a conventional mortgage (20% down payment). Currently property taxes are $1100 per month on the type of house they are interested in. The legal, moving, and other costs (including land transfer tax) are expected to be $20,000 in todays dollars. The inflation rate is 2% per annum, and they expect their salaries to rise at a real rate of 1% per annum. House prices are expected to increase at a rate of 4% per year for the foreseeable future. Property taxes, legal, moving, and other costs will increase at the inflation rate. Use the GDS ratio of 30% and TDS ratio of 40% to solve the problem in nominal terms. a. What is the maximum they can afford to pay for a house and still qualify for the conventional mortgage? Assume 25 year amortization, monthly payments, and mortgage loan interest rate of 2.5% compounded semiannually. b. Suppose currently they have $50,000 in savings. How much do they need to save during each of the next 4 years to make the down payment? Assume they can earn a nominal before tax rate of return of 5% on their savings and their marginal tax rate is 40%.