Reference no: EM132972875
Question - Hu is 30 years old, and would like to save a deposit to buy her first residential apartment close to the Olympic Bird's Nest stadium in Beijing by the age of 35. The average 1 bedroom apartment price in this area is expected to be $400,000, with a recommended deposit of 20% when financing a purchase.
Assuming that property prices are not expected to grow in the medium term, how much money will she need to put into her bank account per year over the next 5 years to afford the recommended deposit and stamp duty for an average 1 bedroom apartment in Beijing? Assume that she currently has an account balance of $60,000, savings account interest rates will remain stable at 1.0%, and interest is compounded daily. Assume an additional Stamp duty cost of 4% of the property value upon purchase. Stamp duty in this case must be paid for with her own savings and cannot be borrowed.
If Hu is successful in her loan application in 5 years' time, calculate her annual loan repayments if the loan term is 30 years and the annual variable home loan interest rate is 3% p.a. compounded daily.
Assume that Hu finds the repayments in part b) too excessive before signing her application and can only afford to pay $10,000 per year. How much could she borrow, given her lower budget, and what is the maximum value of the home she can afford (including stamp duty), given the deposit and stamp duty provision she has saved from part a)? Again, assume an annual variable interest rate of 3% p.a. and daily compounding for 30 years.
Assume that in the future, Hu receives an inheritance of $1,000,000 from her parents when they die. She would like to use that money to build a modern cafe by the beach. It will take exactly 2 years to build. Net income is expected to be $30,000 per year at the end of years 3 to 16. Net income will increase to $32,000 per year at the end of years 17 to 30. Hu would like to sell this property at the end of the 30th year. The property value of $1,000,000 is expected to grow by 2% per year from the time it is built. If Hu has a discount rate of 6%, calculate the Net Present Value (NPV) and explain whether this investment is suitable for her. Ignore stamp duty and applicable tax deductions.
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