fill out the worksheet using the following information:Theoretical Housing Situation:Renting:Monthly Rent: $1,800Renter’s Insurance: $200 per yearSecurity Deposit: $2,000After-tax Savings Rate: 5%Buying:Home Price: $250,000Down Payment: $50,000Loan Amount: $200,000Loan Term: 25 yearsInterest Rate: 3.5%Property Taxes: 1.25% of the home priceHomeowner’s Insurance: 0.4% of the home priceMaintenance Costs: 1.5% of the home priceClosing Costs: $5,000After-tax Rate of Return: 4%Tax Rate: 25%Estimated Annual Appreciation: 2% A. COST OF RENTING1. Annual rental costs(12 x monthly rental rate of $2. Renter's insurance3. Opportunity cost of security deposit:B. COST OF BUYINGTotal cost of renting (line A.1 + line A.2 + line A.3)1. Annual mortgage payments (Terms:( 12 x monthly mortgage payment of2. Property taxes% of price of home)3. Homeowner's insurance% of price of home)4. MaintenanceLess:% of price of home)6. Total costs (sum of lines B.1 through B.5)5. After-tax cost of interest on down payment and closing costs( $8. Tax savings due to interest deductions*(Interest portion of mortgage payments9. Tax savings due to property tax deductions*(line B.2 x tax rate of7. Principal reduction in loan balance (see note below)10. Total deductions (sum of lines B.7 through B.9)$11. Annual after-tax cost of home ownership(line B.6-line B.10)$$12. Estimated annual appreciation in value of home(% of price of home)Total cost of buying (line B.11-line B.12)% after-tax rate of return)$RENT-OR-BUY ANALYSIS%)x after-tax savings ratex tax rate ofmonths,%)%)$Note: Find monthly mortgage payments from the Exhibit in chapter 5 of your textbook. An easy way to approximate the portion of theannual loan payment that goes to interest (line B.8) is to multiply the interest rate by the size of the loan.To find the principal reduction in the loan balance (line B.7), simply subtract the amount that goes tointerest from total annual mortgage payments.*Tax-shelter items.$$$$$I'

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Renting: Monthly Rent: $1,800 Renter’s Insurance: $200 per year Security Deposit: $2,000 After-tax Savings Rate: 5% Buying: Home Price: $250,000 Down Payment: $50,000 Loan Amount: $200,000 Loan Term: 25 years Interest Rate: 3.5% Property Taxes: 1.25% of the home price Homeowner’s Insurance: 0.4% of the home price Maintenance Costs: 1.5% of the home price Closing Costs: $5,000

Renting: Monthly Rent: $1,800 Renter’s Insurance: $200 per year Security Deposit: $2,000 After-tax Savings Rate: 5% Buying: Home Price: $250,000 Down Payment: $50,000 Loan Amount: $200,000 Loan Term: 25 years Interest Rate: 3.5% Property Taxes: 1.25% of the home price Homeowner’s Insurance: 0.4% of the home price Maintenance Costs: 1.5% of the home price Closing Costs: $5,000

PFIN (with PFIN Online, 1 term (6 months) Printed Access Card) (New, Engaging Titles from 4LTR Press)

6th Edition

ISBN:9781337117005

Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Publisher:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Chapter6: Using Credit

Section: Chapter Questions

Problem 3FPE

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Theoretical Housing Situation:

Renting:

Monthly Rent: $1,800
Renter’s Insurance: $200 per year
Security Deposit: $2,000
After-tax Savings Rate: 5%

Buying:

Home Price: $250,000
Down Payment: $50,000
Loan Amount: $200,000
Loan Term: 25 years
Interest Rate: 3.5%
Property Taxes: 1.25% of the home price
Homeowner’s Insurance: 0.4% of the home price
Maintenance Costs: 1.5% of the home price
Closing Costs: $5,000
After-tax Rate of Return: 4%
Tax Rate: 25%
Estimated Annual Appreciation: 2%

Definition Definition Percentage gain or loss from a specific investment over time. The rate of return is the difference between the closing and initial values of an investment divided by the initial value of the investment. The closing value includes any intermediate cash flows such as dividends or interest amounts.

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fill in the blanks using this information: Theoretical Housing Situation: Renting: Monthly Rent: $1,800 Renter’s Insurance: $200 per year Security Deposit: $2,000 After-tax Savings Rate: 5% Buying: Home Price: $250,000 Down Payment: $50,000 Loan Amount: $200,000 Loan Term: 25 years Interest Rate: 3.5% Property Taxes: 1.25% of the home price Homeowner’s Insurance: 0.4% of the home price Maintenance Costs: 1.5% of the home price Closing Costs: $5,000 After-tax Rate of Return: 4% Tax Rate: 25% Estimated Annual Appreciation: 2% Now, fill in the worksheet: A. COST OF RENTING: Annual Rental Costs (Line A.1): 12×$1,800=$21,60012×$1,800=$21,600 Renter’s Insurance (Line A.2): $200 Opportunity Cost of Security Deposit (Line A.3): $2,000×0.05=$100$2,000×0.05=$100 Total Cost of Renting (Line A.1 + Line A.2 + Line A.3): $21,600+$200+$100=$21,900$21,600+$200+$100=$21,900 B. COST OF BUYING: Annual Mortgage Payments (Line B.1): Use a mortgage calculator to find the monthly…
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