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Tutorial 3 PFP

1. The document provides examples of calculating housing loans, car loans, and determining debt ratios. It includes calculating monthly loan payments, outstanding balances, interest paid, and determining affordable home purchase prices. 2. Key calculations include monthly loan payments using the present value, interest rate, and number of periods. It also shows calculating interest and principal portions of payments. 3. Affordable home prices are determined by monthly income, existing debt payments, and qualifying for a mortgage where the total debt service ratio is below 35% of take home pay.

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Winjie Pang
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321 views6 pages

Tutorial 3 PFP

1. The document provides examples of calculating housing loans, car loans, and determining debt ratios. It includes calculating monthly loan payments, outstanding balances, interest paid, and determining affordable home purchase prices. 2. Key calculations include monthly loan payments using the present value, interest rate, and number of periods. It also shows calculating interest and principal portions of payments. 3. Affordable home prices are determined by monthly income, existing debt payments, and qualifying for a mortgage where the total debt service ratio is below 35% of take home pay.

Uploaded by

Winjie Pang
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Tutorial 3: Housing and Automobile Decision (EXAM Chapter)

N need times ‘x’, I no need times ‘x’

Housing loan compounding interest method

Car loan simple interest method


1. Irene bought an apartment for RM250,000 and paid a down payment of
RM50,000. She is taking a 20 year loan at a nominal sum of 6% per annum
on monthly rest from a bank. (Housing loan – Sure use end mode) (Retirement
– Sure use beginning mode)
a. What is the monthly instalment?
End Mode
P
=12
Yr
PV =200,000 ( 250,000−50,000 )
i=6 %
n=20 x 12=240

𝑃𝑀𝑇= RM1,432.86

b. What is the outstanding balance after paying for 12 years? (AMORT)


P 1=1
P 2=144 (12 years monthly 12 x 12 = 144)

Amortised Balance=¿𝑅𝑀109,034.35

c. What is the principal paid at the 60th payment?


P 1=60
P 2=60

Amortised Principal=RM 580.96


d. What is the total interest paid at 50th payment? (From 1st payment to 50th
payment)
P 1=1
P 2=50

Total interest paid =¿𝑅𝑀47,123.56

2. Fong had just visited the launch of new condominium project and he is very
keen to purchase a unit. The developer price for the unit that he had set his
eyes upon is RM450,000. If he were to sign up within the next three days, he
can enjoy 10% cash rebate. Fong quickly called you and seeks your advice on
certain matters. Assuming he intends to take up a 25-year loan with a 80%
margin of financing at an average lending rate of 6.25% p.a.
a. What would be his monthly instalment?
RM 450,000 x 90 %=RM 405,000

80 % Margin of Financing :
RM 405,000 x 80 %=RM 324,000

End Mode
P
=12
Yr
PV =RM 324,000
n=25 x 12=300
i=6.25 %
PMT =RM 2,137.33

b. How much of the third instalment went towards reducing the principal
and how much of it went towards interest expense?
P 1=3
P 2=3

Amortised Principal=RM 454.53


Amortised Interest=RM 1,682.80

c. Assuming he intends to fully settle his loan after 10 years, how much does
he need to repay the bank? (Fully paid for the first 10 years)
10 years=10 x 12=120׿
P 1=1
P 2=120

Amortised Balance=RM 249,273.42

d. If he had continued paying throughout with the same terms and


conditions, how much interest expense would have been incurred by
Fong?
P 1=1
P 2=300

Amortised Interest=RM 317,198.63

3. Suppose you borrowed RM30,000 on a loan at a rate of 8% and must repay it


in 3 equal instalments at the end of each of the next 3 years. How large would
your annual payment, how much of the first payment would represent
interest, how much would be principal?
End Mode
P
=1
Yr
PV =RM 30,000
i=8 %
n=3 years
PMT =RM 11,641.01( Annual payment )

P 1=1
P 2=1

Amortised Interest=RM 2,400.00


Amortised Principal=RM 9,241.01

4. Johnny has just graduated from college and is eager to start his working life.
To commute to his office he needs a car. He is planning to buy a Myvi which
will cost him RM48,000. His parents are willing to help him to pay a down
payment of RM5,000. He is applying a loan from Mbank which will incur an
annual interest rate of 3.55%. The tenure of the loan is 7 years.
a. What is his monthly instalment for the car?
( Loan x ir x years ) + Loan
Monthly Instalment =
Total months
( 43,000 x 3.55 % x 7 ) +43,000
¿
7 x 12
¿ RM 639.11

The monthly instalment for the car is RM639.11.

b. If his starting salary is RM2,500 nett per month, how much is his non-
mortgage debt service ratio? Can he afford the car? (If use monthly for
non-mortgage loan payment then take home pay also monthly, if upper use
annual, take home pay also annual)
Total Non−Mortgage Loan Payments
Non−Mortgage Debt Service Ratio=
Annual Take Home Pay
RM 639.11
¿
RM 2,500
¿ 0.2556 ≈ 25.56 %

He can afford but his non-mortgage debt service ratio is unhealthy which is
above the benchmark of 15%. (He afford to pay, but according to the non-
mortgage debt service ratio is not recommended.)

5. Mark has identify a RM75,000 Toyota Vios to be his first car. He is planning
to pay a down payment of RM5,000. Harris has got an offer from a bank that
charges him an annual interest rate of 3.00% for the hire purchase loan for a
duration of 5 years. He would like to take up the offer. Determine the
monthly instalment that Mark needs to pay for the car.
Loan=RM 75,000−RM 5,000=RM 70,000
i=3 %
n=5 years

( Loan x ir x years ) + Loan


Monthly Instalment =
Total months
( RM 70,000 x 3 % x 5 ) + RM 70,000
Monthly Instalment =
5 x 12
¿ RM 1,341.67

Therefore , Mark needs ¿ pay the monthly instalment of RM 1,341.67 for the car .

6. Michelle wants to know what price home she can afford. Her annual gross
income is RM45,000. She owes RM750 per month on car and RM250 per
month on study loan. She knows she can get a 5.5%, 30 years mortgage. She
expects to make a 20% down payment. What is Michelle's affordable home
purchase price?
RM 45,000
Monthly Income= =RM 3,750
12

Assuming the debt service ratio is equal to 35%:

Total Monthly Loan Repayments


DSR=
Monthly Take Home Pay
Total Monthly Loan Repayments
35 %=
RM 3,750
Total Monthly Loan Repayments=RM 1,312.50

Total Monthly Loan Repayments=Mortgage Loan+Car Loan+ Study Loan


RM 1,312.50= Mortgage Loan+ RM 750+ RM 250
Mortgage Loan=RM 312,50
End Mode
P
=12
Yr
PMT =312.50
n=30 x 12=360
i=5.5 %
PV =RM 55,038.05

Loan=RM 55,038.05=80 % of the price of the house


Down payment=20 % of the price of thehouse

RM 55,038.05
Therefore , price of the house is =RM 68,798.13
80 %

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