Mahsa Combined

.pdf

School

Fanshawe College *

*We aren’t endorsed by this school

Course

Subject

Finance

Date

Jan 9, 2024

Type

pdf

Pages

236

Uploaded by PresidentFireBarracuda42

Practice Questions 1. Kara purchased a property worth $475,000 and requires a total mortgage of $250,000. What is Kara’s LTV? 250000/ 475000 = 52.6% 2. Tamana’s existing mortgage has a balance owing of $350,000. Tamana’s property is worth $700,000 and her original mortgage amount was $490,000. Tamana is allowed to make a prepayment of 10% on her mortgage without paying a penalty. Provided that she has not made any payments this year, what is Tamana’s prepayment privilege? 10% of 490,000 = $49,000 3. What is the difference between the Gross Debt Service ratio and Total Debt Service Ratio? TDSR includes debt 4. Gabi’s mortgage has come up for renewal and she is debating whether to renew her mortgage into a 5 year fixed or variable rate. The current 5-year fixed rate is 3% and the 5 year variable rate is 2.2%. Gabi works as a successful accountant with a strong income and can meet all of her financial obligations with ease. In addition, you noticed that she has free cash flow of $2500 at the end of each month. Gabi is looking for the best possible rate and doesn’t believe we’re in an environment where interest rates will go up anytime soon. Gabi has come to you to help her make up her mind, would you suggest Gabi to renew at the fixed or variable rate? Variable 5. Dora would like to purchase a house that has a purchase price of $400,000 How much money does she have to provide to meet her minimum down payment requirement? $20,000 6. Alex is a first-time home buyer; she has $50,000 in her RRSP invested in a Managed Growth Portfolio. How much can Alex withdraw tax-free from her RRSP under the first- time home buyer plan to use towards her down payment? 35,000 7. What is the difference between a Guarantor and a Co-signer? Cosigner is responsible for pmt, guarantor is usually necessary when primary borrower has unsatisfactory credit. 8. After observing your credit report, you notice an R1 next to your Line of Credit and an M1 next to your mortgage – what does this mean? No late payments 9. Rosalie needs $1,700,000 in her RRSP by the time she turns 65 to fully fund her retirement. If she is currently 30 years old and has $90,000 invested in her RRSP, how much money does she have to save from each of her bi-weekly pay cheques if her investment is expected to earn 7% per year after fees and compounds monthly? P/Y = 26

C/Y = 12 N = 35 X 26 = 910 I/Y = 7 PV = -90,000 PMT = ? 170 FV 1,700,000 10. Mike is new to Canada and has no established credit history. What product should Mike apply for to help build and establish his credit history in Canada? CREDIT CARD!

Week 12 – Exam Practice Questions I have made some additional practice questions to help prepare you for the final exam. We will take these questions up in class. 1. Kim owns her own home. It is currently worth $600,000. Her current outstanding mortgage balance is $420,000 and is secured by a conventional mortgage. What is the maximum amount of money that Kim could borrow if she refinanced her mortgage? 80% of 600,000 = $480,000 - $420,000 = $60,000 2. How much are the weekly payments for a four-year, $40,000 loan that charges interest of 6%, compounded monthly? P/Y = 52, C/Y = 12, N = 208, PV = 40,000, I/Y = 6, FV = 0.. CPT PMT = 216.37 3. What is the monthly lease cost over 60 months for a vehicle that has a total cost of $45,000 if the lease charges 3% interest, interest compounds monthly, and the vehicle has a residual value of $22,000 at the end of the lease? P/Y = 12, C/Y = 12, N = 60, I/Y = 3, PV= -45000, FV = 22,000.. CPT PMT = 468.28.. 4. Olivia has purchased a property in Toronto for $650,000 and has put down $160,000 as a down payment. What is Olivia’s LTV? 650,000 – 160,000 = 490,000/650,000 LTV = 75.38% 5. Ashley earned a net nominal rate of return of 6.8% last year on her investment portfolio. If inflation was 2%, what was her real rate of return? ( 1+6.8%/1+2%) – 1) X 100 = 4.7% 6. Massimo needs $2,000,000 in his RRSP by the time he turns 65 to fully fund his retirement. If he is currently 30 years old and has $80,000 invested in his RRSP, how much money does he have to save from each of his bi-weekly pay cheques if his investment is expected to earn 7% per year after fees and compounds monthly? P/Y = 26, C/Y = 12, I/Y = 7%, N = 910, PV = -80,000, FV = 2,000,000 … PMT? 276.20 7. Beverley recently graduated from college and would like to purchase her first home. She has found a property worth $420,000. She has saved $95,000 as a down payment and expects her closing costs to be 3%. How much will Beverley's mortgage balance be when she purchases the house? 420,000 X 3% = 12,600, 432,600 – 95,000 MTG = 337,600 8. Kim and Kyle are applying for a $25,000 loan to purchase a car. The five-year loan will charge 4% interest (compounded monthly). They own their condo and monthly payments include their mortgage of $1,700, their condo fees of $600, and their heating expense of $100. Their property taxes are $6,000 per year. Kim and Kyle earn gross salaries of $80,000 and $70,000 each year respectively. What is their Gross Debt Service Ratio? GDSR= 1700 + 300 + 100 + 500/12,500 = 20.8%

9. Mike and Jessica have decided to buy a property in the Greater Toronto Area for 1.4 million dollars. What is the minimum down payment required? 20% x 1,400,000 = 280k 10. Luke has decided to buy a property outside of Toronto for $450,000. What is the minimum down payment required? 450,000 x 5% = 22,500 11. Allison has $50,000 invested in her TFSA and expects to earn a return of 6% compounded annually, what will her investment be worth in 8 years? P/Y = 1, C/Y= 1, PV = -50,000, I/Y = 6%, PMT = 0, N = 8.. FV? 79,692.40 12. If Ali invests $500 from his weekly pay cheque for the next 20 years, how much money will he have in his account if he expects to earn a return of 5%, compounded annually? P/Y = 52, C/Y = 1, N = 1040, PMT = -500, PV = 0, I/Y = 5 .. CPT FV? = $880,619.65 13. Karen’s condo is worth $600,000. She owes $320,000 on her 6% fixed-rate mortgage which compounds semiannually that has three years remaining in its term. Karen pays $2,300 per month towards it. What is the amortization of the current mortgage? P/Y = 12, C/Y = 2, PV = 320,000, PMT = -2300, I/Y = 6% , FV = 0 ..CPT N? 236.

More Exam Review Questions! 1. What credit facility would be suitable as an emergency reserve? Line of credit 2. What is the maximum LTV for a conventional mortgage? 80% 3. At which frequency do mortgages typically compound? Semi-annually 4. What is longevity risk? Outliving your assets 5. Ursula would like to purchase a house that has a purchase price of $650,000 How much money does she have to provide to meet her minimum down payment requirement? 500,000 x .05 = 25,000 + 150,000 x 10% = 15,000 = 40,000 The minimum down payment (in Canada depends on the purchase price of the home: If the purchase price is less than $500,000, the minimum down payment is 5%. If the purchase price is between $500,000 and $999,999, the minimum down payment is 5% of the first $500,000, and 10% of any amount over $500,000. If the purchase price is $1,000,000 or more, the minimum down payment is 20%.) 6. Bianca earned a net nominal rate of return of 7% last year on her investment portfolio. If inflation was 3%, what was her real rate of return? 1.07 / 1.03 – 1 =.0388 x 100 = 3.88% 7. Sia and Sergio are applying for a $35,000 unsecured line of credit have for emergency purposes. Their monthly payments include their mortgage of $ 1900 , their condo fees of $ 300 , and their heating expense of $ 100 . Their property taxes are $ 6000 per year. Sergio has a student loan that he pays $500 per month towards. Sia and Sergio earn annual gross salaries of $ 70,000 and $ 130,000 , respectively. What is the couple's GDSR? 1900 + 150 + 100 + 500 = 2650, 16,667 … 2650/16667 = 15.9% .. GDSR is less than 32%, looks good! 8. What rate of return do you need to earn to retire with $900,000 in 20 years if you invest $900 per month, compounded quarterly? P/Y = 12, C/Y = 4, FV = 900,000, PV = 0, PMT -900, N = 240, I/Y ? 12.2%