A couple in Ruston, Louisiana, must decide whether it is more economical to buy a home or to continue to rent during an inflationary period. Presently the couple rents a one-bedroom duplex for $450 a month plus $139 a month in basic utilities (heating and cooling). These costs tend to increase with inflation, and with the projected inflation rate of 5%, the couple's monthly costs per year over a 1O-yearplanning horizon are as follows.

n =           1.         2          3          4           5          6          7         8          9          10

Rent      450    473      496      521       547     574      603      633      665      698

Utilities 139    146      153      161       169     177      186      196      205      216

The couple would like to live on the north side of the town, where an average home of 150 m2 of heating area costs $75,000. A local mortgage company will provide a loan for the property provided the couple makes a down payment of 5% plus estimated closing costs of 1% cash for the home. The couple prefers a 30-year fixed-rate mortgage with an 8% interest rate. Based on the couple's gross annual income, the couple falls in the 30% marginal income tax rate (federal plus state), and as such, buying a home will provide them some tax write-off. It is also estimated that the basic utilities for the home inflating at 5% will cost $160 per month; insurance and maintenance also inflating at 5% will cost $50 per month. The home will appreciate in value about 6% per year. Assuming a nominal interest rate of 15.5%, which alternative will be more attractive to the couple on the basis of the present worth analysis? (Note: Realtor's sales commission here is 5%)