If they rent, the builder will require monthly rental payments of $1,100 and a security deposit equal
Question:
If they rent, the builder will require monthly rental payments of $1,100 and a security deposit equal to two months of rent. Since they want to be protected against the possible loss of their possessions, they will purchase a renters' policy of $200 every six months, while a more comprehensive homeowners' policy will cost 0.5% of the home's value per year. Money used to fund the house's security deposit could otherwise be invested to earn 5% per year after taxes. Funds expended for a home's down payment and closing costs also incur an opportunity cost. If the house is purchased, it will cost $110,000 and will require a 20% down payment. The loan will carry an interest rate of 6%, a term of 30 years, and monthly payments of $528. The closing costs associated with the house's mortgage will be $3,500. The property taxes and the maintenance and repair expenses on the house are estimated to be 3% and 1% of the house's total price, respectively. Your ordinary income is taxed at the rate of 28%, and you'll be willing to itemize your tax deductions in the event that you purchase your new home. Financial publications report that home values are expected to increase by 3% this year due to inflation. What is the opportunity cost on renting>
Fundamentals of corporate finance
ISBN: 978-0078034633
10th edition
Authors: Stephen Ross, Randolph Westerfield, Bradford Jordan