9. Housing prices: Suppose a condominium can be rented for $1,000 a month, it depreciates at 10 percent per year, the annual interest rate is 5 percent, and the tax rate relevant for the mortgage interest deduction is 40 percent. Let the down-payment rate and the annual growth rate of condominium prices be given by the table below: Growth rate of condo prices (percent) Down-payment rate, X (percent) Price of the condo 20 20 20 10 20 100 - 10 1. For each case, compute the value of the housing price according to the simple theory developed in the chapter. 2. Based on your results, discuss the sensitivity of condo prices to the expected capital gain. 3. Based on your results, discuss the sensitivity of condo prices to the down-payment rate. 2.

9. Housing prices: Suppose a condominium can be rented for $1,000 a month, it depreciates at 10 percent per year, the annual interest rate is 5 percent, and the tax rate relevant for the mortgage interest deduction is 40 percent. Let the down-payment rate and the annual growth rate of condominium prices be given by the table below: Growth rate of condo prices (percent) Down-payment rate, X (percent) Price of the condo 20 20 20 10 20 100 - 10 1. For each case, compute the value of the housing price according to the simple theory developed in the chapter. 2. Based on your results, discuss the sensitivity of condo prices to the expected capital gain. 3. Based on your results, discuss the sensitivity of condo prices to the down-payment rate. 2.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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