Suppose they remain in the same place for the next five year

Assignment Help Macroeconomics
Reference no: EM1332508

Bergholts

The real estate agent tells the Bergholts that if they don't care to purchase, they might consider renting. The rental option would cost $1,400/month plus utilities estimated at $220 and renter's insurance of $25/month. The Bergholts believe that neither of them is likely to be transferred to another location within the next five years. After that, Dan perceives that he might move out of government service into the private sector. Assuming they remain in the same place for the next five years, the Bergholts would like to know if it is better to buy or rent the home. They expect that the price of housing and rents will rise at an annual rate of 3% over the next five years. They expect to earn an annual rate of 4% on the money market fund. All other prices, including utilities, maintenance, and taxes are expected to increase at a 3% annual rate. After federal, state, and local taxes, they get to keep only 55% of a marginal dollar of earnings.

Estimate whether it is financially more attractive for the Bergholts to rent or to purchase the home over a five-year holding period. (Assuming the contract interest rate of 8%, monthly interest payments over the five-year period would total $87,574.)

 

Reference no: EM1332508

Questions Cloud

Minorities and affirmative action : The U.S. Supreme Court ruled in his favor, and the Board of Regents was ordered to admit the student. This has been referred to as a case of reverse discrimination. Please comment on your feelings about the Court's opinion.
Explain why is private property and the protection of proper : Explain why is private property and the protection of property rights, so crucial to the success of the market system.
Explain about benefits communication : Does your current organization have a strategy in place to communicate its benefits plan to employees and If so, how effective is it, and what can be done to improve it
Keeping expatriate managers in top positions : List the key reasons for keeping expatriate managers in top positions.
Suppose they remain in the same place for the next five year : Suppose they remain in the same place for the next five years, the Bergholts would like to know if it is better to buy or rent the home.
Value creation and value extraction mean : Describe what value creation and value extraction mean in qualitative and quantitative terms.
World bank has an impact upon globalization? : Do you feel that the World Bank has an impact upon globalization? Do you feel that this financial instrument has helped or hindered globalization?
Step-by-step answer to management : Step-by-step answer to management - How are they affected and Provide specific, real-to-life, private-sector examples
Consequences associated with immoral behaviors : What are the implications of lying on a questionnaire even though the department may not find out the truth? What would you gain if the truth was told?

Reviews

Write a Review

 

Macroeconomics Questions & Answers

  Assume you flipped an honest coin

Assume you flipped an honest coin 10 times and heads came up 8 times.

  Illustrate what is the arc cross elasticity of demand

Illustrate what is the arc cross elasticity of demand among Future Flight's and Soaring Free's frisbees

  Finding the expansion path

Suppose a production function is given by f(K;L) = KL 2 What combination of labour and capital minimizes the cost of producing any given output?

  Find out the real wage rate

Plot the wage- setting and price setting equation or a property labelled graph and identity the nature rate of unemployment.

  Weaknesses of federal reserve operating procedures

Compare and contrast the strengths and weaknesses of today's Federal Reserve operating procedures and monetary decision making policy.

  Illustrtae what should the arbitrageur do

Illustrtae what should the arbitrageur do. Suppose that the cost of storing gold is zero and that gold provides no income.

  Optimal price level-marginal cost

Compute the point price elasticity of demand for bearing grease. Compute the optional price for bearing grease if marginal cost is $4.50 per unit.

  Price elasticity of demand for two products-marginal cost

Given the price elasticity of demand for two products & marginal cost, determine the optimal markups and prices under third-degree price discrimination.

  Impact of increase in price of one good

Assume x and y are the only two goods a person consumes. If after a rise in p x , the quantity demanded of y decreases, one could say

  Assume that the price elasticity of demand for good

Assume that the price elasticity of demand for good. Describe how much consumption changes.

  Cost minimization problem of mor tex company

The Mor Tex Company assembles Garments by hand even though a textile machine exists that can assemble garments faster than a human.

  Linear and log linear trend in data

Estimate the linear trend in the data, and use it to forecast gasoline sales in the United States in each quarter of 1990.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd