Use Worksheet 5.2 and Exhibit 5.6. Emma Sanchez is currently renting an apartment for $575 per month and paying $400 annually for renter's insurance. She just found a small townhouse she can buy for $175,000. She has enough cash for a $10,000 down payment and $4,000 in closing costs. Emma 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 does not plan to itemize deductions on her taxes. Using Worksheet 5.2, calculate the cost of each alternative and recommend the least costly option - rent or buy - for Emma. Assume Emma's security deposit is equal to one month's rent of $575. Also assume a 4% after tax rate return on her savings, a 3% annual appreciation in home price, and a 6% mortgage interest rate for 30 years. a. Cost of renting. Round the answer to the nearest dollar. b. Cost of buying. Round the answer to to the nearest dollar. 2$ c. Emma should -Select- the home.
Use Worksheet 5.2 and Exhibit 5.6. Emma Sanchez is currently renting an apartment for $575 per month and paying $400 annually for renter's insurance. She just found a small townhouse she can buy for $175,000. She has enough cash for a $10,000 down payment and $4,000 in closing costs. Emma 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 does not plan to itemize deductions on her taxes. Using Worksheet 5.2, calculate the cost of each alternative and recommend the least costly option - rent or buy - for Emma. Assume Emma's security deposit is equal to one month's rent of $575. Also assume a 4% after tax rate return on her savings, a 3% annual appreciation in home price, and a 6% mortgage interest rate for 30 years. a. Cost of renting. Round the answer to the nearest dollar. b. Cost of buying. Round the answer to to the nearest dollar. 2$ c. Emma should -Select- the home.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Use Worksheet 5.2 and Exhibit 5.6. Emma Sanchez is currently renting an apartment for $575 per month and paying $400 annually for renter's
insurance. She just found a small townhouse she can buy for $175,000. She has enough cash for a $10,000 down payment and $4,000 in closing costs.
Emma 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 does not plan to itemize deductions on her taxes. Using Worksheet 5.2, calculate the
cost of each alternative and recommend the least costly option - rent or buy - for Emma.
Assume Emma's security deposit is equal to one month's rent of $575. Also assume a 4% after tax rate return on her savings, a 3% annual appreciation
in home price, and a 6% mortgage interest rate for 30 years.
a. Cost of renting. Round the answer to the nearest dollar.
$
b. Cost of buying. Round the answer to to the nearest dollar.
c. Emma should -Select- v the home.
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