Suppose you buy a home for $200,000, using your own funds funds. The annual interest rate you could earn by investing your funds elsewhere is 5%. (Ignore any sales commissions or fees associated with buying or selling a home.)
a. If the price at which you could sell the home remains at $200,000, what is your annual interest cost of home ownership?
b. Suppose that, after a few years of owning, home prices rise dramatically, and you can now sell your home for $300,000. If you continue to own, what is your annual interest cost now?
c. Suppose once again that, after a few years of owning, you can now sell your home for $300,000. But the interest rate you could earn by investing your funds elsewhere has risen to 7%. If you continue to own, what is your annual interest cost now?