# Problem 2 of 3

The Smith family can purchase a house valued at $100 000.00 with a down payment of $10 000.00, or they could rent a similar house.

(a) The monthly payment for a mortgage, amortized over 15 years at an interest rate of 6.50% compounded monthly, is $784.00. If the Smiths purchase the house, calculate the total amount paid, including the down payment, by the end of the first 5 years.

(b) Real estate appreciates at a rate of 3% per year. Determine the equity in the purchased house after 5 years. Show all work.

(c) Given that it is more expensive to rent, give two reasons why the Smiths would choose to rent.

**Solution**

Next Problem

Previous Problem

By: Jason

A)

N=5 (The Amount of Time)

I%= 6.50 (The Interest Rate)

PV= 10000 (The Down Payment)

PMT= 784.00 (Monthly Payment)

FV= (alapha solve) 14236.48 (This is What We are Trying To Figure Out)

P/Y= 12(It is Compounded Monthly So This Value is The Amount of Months in A Year)

C/Y= 12 (It Gets Compounded Every Time a Payment is Made)

B)

N=5( The Amount of Time)

I%= 3.0 ( The Interest Rate)

PV= 10000 (The Down Payment)

PMT= 784.00 (The Monthly Payment)

FV= (alapha solve) 14065.28 (This is The New Equility For the Purchased Home After 5 Years)

P/Y= 12(It is Compounded Monthly So This Value is The Amount of Months in A Year)

C/Y= 12 (It Gets Compounded Every Time a Payment is Made)

C)

i) they do not need the house for a permenant amount of time

ii) they do not have to worry about repairs to the premisis. The landlord duty.

## Comments (0)

You don't have permission to comment on this page.