Reference no: EM133015880

Questions -

Q1. You have $50,000 saved that you would like to invest in a rental property. The property would generate $1,000 of gross monthly rent and incur $400 in monthly expenses comprising of strata fees, property taxes, insurance & maintenance. A bank is willing to provide a standard 25-year mortgage at the current rate of 2.5% APR, but with the following two restrictions: Loan-to-Value (LTV) no greater than 80% and Debt Service Ratio (DSR) no less than 125%. If the property costs $160,000, then can you afford it? What if the bank offers 30-year mortgage but at 3% APR - does your answer change? In each case, calculate the maximum cost of the property that you can afford.

Q2. You can buy a car for $40,000 cash and receive $2,500 cash-back or pay the total in 48 monthly instalments with 0% financing. Which option would you prefer if the market rate of interest is 4% APR, compounded quarterly.

Q3. You plan to retire 33 years from now. You expect that you will live 27 years after retiring. You want to have enough money upon reaching retirement age to withdraw $180,000 from the account at the beginning of each year you expect to live, and yet still have $2,500,000 left in the account at the time of your expected death (60 years from now). You plan to accumulate the retirement fund by making equal annual deposits at the end of each year for the next 33 years. You expect that you will be able to earn 12% EAR per year on your deposits. However, you only expect to earn 6% EAR per year on your investment after you retire since you will choose to place the money in less risky investments. What equal annual deposits must you make each year to reach your retirement goal?