1. Based on the following data, would you recommend buying or renting? (LO 7.1) Rental Costs Buying Costs Annual rent, $7,380 Annual mortgage payments, $9,800 ($9,575 is interest) Insurance, $145 Property taxes, $1,780 Security deposit, $650 Down payment/closing costs, $4,500 Growth in equity, $225 Estimated annual appreciation, $1,700 Insurance/maintenance, $1,050 Assume an after-tax savings interest rate of 6 percent and a tax rate of 28 percent. Rental Costs Buying Costs Rent $7,380 Mortgage payments $9,800 Insurance 145 Taxes, insurance, maintenance 2,830 Interest lost on security deposit 39 Interest lost on down payment, closing costs 270 Growth in equity -225 Annual appreciation -1,700 Tax savings for mortgage interest -2,681 Tax savings for property taxes -498 Total rental costs $7,564 Total buying costs $7,796

1

Explanation:

a. Let calculate the cost to rent

Buying Costs equal $7,380

Rent equal $9,800

Mortgage payments equal 145 Insurance equal $2,830

Since taxes, insurance, maintenance 39 Interest lost on security deposit and 270 Interest lost on down payment, with a closing costs of -225

Growth in equity equal 1,700

Annual appreciation equal 2,681

Tax savings for mortgage interest of 498

Tax savings for property taxes

$ 7,564

Total rental costs

$ 7,796 Total buying costs

Interest lost on security deposit = $650 × 0.06 = $39

Interest lost on down payment and closing cost = $4,500 × 0.06 = $270

Tax savings for mortgage interest = $9,575 × 0.28 = $2,681

Tax savings for property taxes = $1,780 × 0.28 = $498

(b) cost of renting is less than cost of buying, if cost is the only criteria, renting is better.

answer; /// i do believe the correct answer is (30,000);

the correct answer is economics is a game without winners or losers.

unlike sports or games economic is a game without losers or winner rather it is a game where everyone wins. parties of business doing businesses exchange money with each other and hence exchange is done on the basis of goods. one party takes the goods and other sales it so there is winner on both sides. each party values more highly the good it gets than the good it gives up. both sides exchange only because both intend to increase their value. so there is no concept of lose or win.