Steven is looking to purchase an investment property, and is interested in a particular apartment on London Street. This apartment costs $500,000. Steven has also estimated that the other upfront costs for purchasing the apartment will total $5,000. Steven has also spoken to his real estate agent Ray and his banker Jane, and gathered the following additional information:

• Strata for the apartment is estimated at $700 per quarter in arrears.

• Council rates are estimated at $500 per year payable in arrears.

• Steven can expect to receive $1,600 per month in rent, paid in advance. The apartment is currently tenanted, so he expects to receive the first rent payment immediately after he purchases the apartment.

• The bank will only lend a maximum of 80% of the apartments price.

• The bank is willing to lend to Steven at an interest rate of 3.5% p.a. compounding daily. The banking industry standard is to always assume there are 365 days in a year.

• Currently, Steven is considering the value of this investment over the next 10 years.

1. Steven intends to borrow 80% of the purchase price (note that this does NOT include the upfront costs), and repay this loan using level monthly repayments in arrears. The first repayment would be made exactly one month after the purchase of the apartment. Calculate the size of the repayment that will allow him to fully repay the loan after exactly 10 years

2. Under the arrangement in question 1) calculate the loan outstanding after exactly one year (immediately after the repayment on that date)

3. Hence calculate the interest paid in the first year

NOTE - please show working out using time value of money formulas on paper not excel