Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

You wish to buy a house five years from now, which will expectantly cost $550,000 after five years. You will pay parts of this price

image text in transcribed
image text in transcribed
You wish to buy a house five years from now, which will expectantly cost $550,000 after five years. You will pay parts of this price from your personal deposit. You will cover the rest of the purchase price by taking two types of loans at the time of purchase: a 4-year fixed-interest personal loan of $20,000 - a 25-year fixed-interest house loan for the rest of the house price (.e. after paying from the personal deposit and the $20,000 taken as a personal loan at the time of purchase) Currently, you have $5,000 on deposit in a bank account, providing 2.5% p.a. interest compounded monthly. You will also deposit $1,000 monthly into this bank account from now until you purchase the house after 5 years. You also have the following information concerning loans from your bank: Loan Type Interest Rate Interest Compounded Loan Application 25-year fixed interest house loan 4-year fixed-interest personal loan 5% p.a. 10% p.a. Monthly Semi-annually $100 The loan application fee will be added to the amount you borrow from the bank and the repayment will be based on the total amount borrowed (inclusive of loan application fee). Assume that this loan information will remain identical when you purchase the house after five years. For the loans, your repayment frequency per year will be the same as the frequency of interest compounding per year. Thus, for the 25-year house loan, you will repay at the end of every month; and for the 4-year personal loan, you will repay at the end of every semi-annum. Considering the above information, please answer the following: (a) considering your current deposit of $5,000 in your bank account and your plan to deposit $1,000 monthly into the account for 5 years, how much money will you have as a personal deposit at the end of 5 years? (4 marks) (b) Out of the $550,000 house price, you will pay using the personal deposit that you will have after 5 years and a 4-year fixed interest personal loan of $20,000. If such is the case, what will be the amount you will take from the bank as a 25-year fixed interest house loan? [1 mark] (c) Determine your monthly repayment for the house loan. [3 marks] (d) Prepare an amortisation schedule for the personal loan. [8 marks)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Management Theory And Practice

Authors: Eugene F Brigham, Michael C Ehrhardt

11th Edition

0324259689, 9780324259681

More Books

Students also viewed these Finance questions

Question

What lifestyle traits does your key public have?

Answered: 1 week ago