Derivatives,securities Commision

QUESTION 1-

a-

As I have first read to question, I wasn’t clear on whether we were required to calculate the savings for the duplex or for the primary residence. However since only half of the $40,000 is mentioned as down payment, I believe the question is asking us to investigate the insurance premium savings for the primary residence.

$350,000 / 2 – $20,000 = $155,000 would be borrowed as mortgage to buy the residence worth $175,000

The ratio of the mortgage to home value is more than 85% but less than 90%, therefore the applicable premium rate is 2.40% of $155,000.

Premium ($) = 155,000 * 0.0240 = $3,720

Transfer of the $50,000 inherited for down payment on the duplex would lower the residence mortgage by $50,000/2 = $25,000

155,000 – 25,000 = 130,000

130,000/175,000 is barely less than 75%, therefore the applicable premium rate is 0.75% of the $130,000 mortgage.

0.75% * 130,000 = $975

$3,720 - $975 = $2,745 is saved for the insurance premium on the residence.

If the duplex is fully considered; 2,745 * 2 = $5,490 would be saved.

Reference: https://www.cmhc-schl.gc.ca/en/hoficlincl/moloin/hopr/hopr_012.cfm

b-

Monthly gross income = $80,000/12 = $6,666.67

Monthly property tax and utility cost = (4,000/2 + 1,500)/12 = $291.67

Monthly credit card payment = 10,000/12 = $833.33

Monthly car loan payment:

25,000 PV                 6/12 = 0.5 I/Y                        5*12 = 60 N

CPT PMT = $483.32

Monthly mortgage payment:

130,000 PV        3.6/12 = 0.3 I/Y                25*12 = 300 N

CPT PMT = $657.81

TDS ratio = (291.67 + 833.33 + 483.32 + 657.81)/6,666.67 = 33.99%

Totally acceptable because it is less than 40%

Reference: http://canadianfinanceblog.com/debt-service-ratio-gds-and-tds/

c-

Rental income wouldn’t be fully taxed. Only the net portion would be taxed. In order to calculate the net portion, the total value of deductions should be calculated first.

Deductions would be expenses such as mortgage interest expense, property taxes, maintenance fees etc.

Once the deductions are dropped from the rental income, the remaining value would be called the net rental income. It would be written as part of earned income on line 126.

Reference: https://answers.yahoo.com/question/index?qid=20100728154040AAWYwg1