Question

Ernie McNaire has just made the final payment on his mortgage. He could continue to live in the home; cash expenses for repairs and maintenance (after any tax effects) would be $750 monthly. Alternatively, he could sell the home for $490,000 (net of taxes), invest the proceeds in 3% municipal tax-free bonds, and rent an apartment for $18,000 annually. The landlord would then pay for repairs and maintenance.
Prepare two analyses of McNaire’s alternatives, one showing no explicit opportunity cost and the second showing the explicit opportunity cost of the decision to hold the present home.



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  • CreatedNovember 19, 2014
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