Reference no: EM132899896

Joy Ann graduated from the University of Canterbury five years ago and is currently employed in the administrative department of the local government office. When she had just started working for the administrative department five years ago her annual salary was $45,000 after taxes. Over the five years, Joy Ann's after tax salary has been increasing at the rate of 5% per year to account for inflation and increases in the minimum wage. Now that she is 27 years old, Joy Ann has started looking for a house to settle in. She has found a lovely three bedroom property located in Rolleston. As Joy Ann does not have enough cash to purchase the house outright (the property price asked for is $650,000), she goes to the AFB Bank to see if she can be granted a home loan. The home loan office has examined her current financial situation along with the current price of this property and offered her a fixed rate home loan for 30 years at an annual rate of 4.5% compounded monthly. On top of that, the AFB bank needs a 10% deposit (payment at the beginning), which Joy Ann's parents are willing to pay on her behalf.

Required: (Show all your workings!)

Problem a) What is Joy Ann's annual after tax salary now? (round up to two decimal points)

Problem b) If Joy Ann's parent do not have the money to pay the required 10% deposit, Joy Ann will have to pay the deposit herself. To save up the amount needed for the deposit, she can immediately put all her savings ($30,000) into a savings account earning annual interest of 4.2% compounding monthly. How much more would Joy Ann have to deposit in this saving account at the end of every month, so that she could accumulate the required deposit in 6 years' time from today?

Problem c) Can Joy Ann afford to pay the monthly mortgage to the AFB bank if the maximum amount of monthly mortgage payments she can afford is 40% of her current monthly after tax salary?

Problem d) The BNB Bank is offering home loans on similar terms, except that the annual rate of 4.2% is compounded fortnightly (every two weeks). Which bank should Joy Ann choose? Why?