Stanley, age 33, single, earns an annual income of $900,000 with a saving of $1 million. He purchased his car three years ago. His monthly auto loan payment is $2,800.

Stanley is considering to rent or buy a 2-bedroom flat in Sunshine Island. The appraisal value and market monthly rent of the 2-bedroom flat in Sunshine Island are $7 million and $18,000 respectively.

Stanley's parents convince him to purchase his home but most of his friends rent their homes.

To rent a 2-bedroom flat in Sunshine Island for a standard term of 2 years, Stanley needs to prepare 2 months' worth of rental for security, 1 month rent in advance and half month's estate agent's commission. In addition, the stamp duty chargeable on the tenancy document is based on

0.8 percent of average yearly rent plus $6 for a duplicate copy and will be equally shared between the landlord andStanley.

There are two measures for the purchase of all self-use residential properties in Sunshine Island. The first one is the maximum loan-to-value ratio (LTV) is 60%. The second one is the maximum debt-servicing ratio (DSR) is 45%, and its corresponding stressed-DSR is 55% assuming an increase of the mortgage rate by 250 basis points.

To purchase a 2-bedroom flat in Sunshine Island, the mortgage plan provided by Sunshine Bank is H+2.1%, cap at P - 2.5%, repayable in 30 years. The prime rate (P) is 5.5% and the I-month HIBOR (H) is 1.23%. If the mortgagor joins the mortgage insurance programme, Sunshine bank will offer 90 percent loan to value ratio, subject to the second measure on the DSR and stressed DSR (excluding mortgage insurance premiums). The payment options of insurance premium include 3.5% of original principal balance for single premium or 0.25% of original principal balance for annual premium.

Required:

1. Propose any TWO arguments that Stanley's parents used to convince Stanley for home purchase. Give any TWO reasons that his friends favored home rental. (4 marks)

2. Calculate the amount to be prepared by Stanley for renting a 2-bedroom flat in Sunshine Island. Show all yourworkings. (3 marks)

3. Based on the above information, calculate the single premium and annual premium of mortgage insurance programme on Stanley's mortgage amount of $6.3 million. Show all yourworkings. (2 marks)

4. Based on the above information, evaluate whether Stanley's mortgage amount of $6.3 million for the 2-bedroom flat in Sunshine Island passes or fails the DSR and stressed-DSR requirements. Briefly explain your answers. Show all your workings. (9 marks)

5. Other than the purchase price of a car, name any FOUR additional expenses of owning a car. (2 marks)