An investor borrows £150,000 on the 1st of January 2017. The capital will be repaid after 25 years while interest on the loan is paid annually in arrears at a rate of 5% p.a. effective. The same investor receives an income from a property rental. The rent amounts to £800 payable monthly in advance (i.e. at the start of each month) and it is deposited in a savings account that pays interest at 3% p.a. effective. (a)Without using lengthy calculations explain why the rent is sufficient to cover the annual interest repayment on the loan. (b) Compute the total amount of annual savings at the end of each year accounting for the rent income net of the interest repayment on the loan. (c) Find the minimal additional amount X that the investor needs to pay every year into the savings account in order to repay the capital on 1st January 2042. Assume such payments are made in arrears.

An investor borrows £150,000 on the 1st of January 2017. The capital will be repaid after 25 years while interest on the loan is paid annually in arrears at a rate of 5% p.a. effective. The same investor receives an income from a property rental. The rent amounts to £800 payable monthly in advance (i.e. at the start of each month) and it is deposited in a savings account that pays interest at 3% p.a. effective. (a)Without using lengthy calculations explain why the rent is sufficient to cover the annual interest repayment on the loan. (b) Compute the total amount of annual savings at the end of each year accounting for the rent income net of the interest repayment on the loan. (c) Find the minimal additional amount X that the investor needs to pay every year into the savings account in order to repay the capital on 1st January 2042. Assume such payments are made in arrears.

CONCEPTS IN FED.TAX.,2020-W/ACCESS

20th Edition

ISBN:9780357110362

Author:Murphy

Publisher:Murphy

Chapter5: Introduction To Business Expenses

Section: Chapter Questions

Problem 61P

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