Use Worksheet 5.2. Aurelia Montenegro is currently renting an apartment for $725 per month and paying $275 annually for renter’s insurance. She just found a small town-house that she can buy for $185,000. She has enough cash for a $10,000 down payment and $4,000 in closing costs. Her bank is offering 30-year mortgages at 6 percent per year. Aurelia estimated the following costs as a percentage of the home’s price: property taxes, 2.5 percent; homeowner’s insurance, 0.5 percent; and maintenance, 0.7 percent. She is in the 25 percent tax bracket and has an after-tax rate of return on invested funds of 4 percent. Using Worksheet 5.2, calculate the cost of each alternative and recommend the less costly option—rent or buy—for Aurelia.
Answer to relevant QuestionsUse Worksheet 5.3. Jennie and Caleb McDonald need to calculate the amount that they can afford to spend on their first home. They have a combined annual income of $47,500 and have $27,000 available for a down payment and ...Explain how the composition of the principal and interest components of a fixed-rate mortgage changes over the life of the mortgage. What are the implications of this change?What is open account credit? Name several different types of open account credit.Discuss the steps that you would take to avoid and/or resolve credit problems.Gabriel Donleavy, a student at State College, has a balance of $380 on her retail charge card; if the store levies a finance charge of 21 percent per year, how much monthly interest will be added to her account?
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