(Solved): A couple plans to purchase a home for $250 000. Property taxes are expected to be $1900 per year while insurance premiuns are estimate

A couple plans to purchase a home for $250 000. Property taxes are expected to be $1900 per year while insurance premiuns are estimated to be $700 per year. Annual repair and maintanance is expected at $1400. an alternative is to rent a house of about the same size for $1500 per month ( approximate using $18000 per year) payments. if a 8.0% return before-tais the couple s minimum rate of return , what must the resale value be 10 years from today for the cost of owerneship to equal the equivalent cost of renting? Finally, given the breakdown year 10 sale value just asked for, what is the corresponding annual price escalation or de-escalation in the house over the ten years?

Expert Answer

 

1. Calculating Future Value of Payments if Property Purchased

Cost of the Property = 250,000

Recurring Cost per annum = 1900 (Property Taxes) + 700 (Insurance Premium) + 1400 (Repairs and maintanance) = 4,000

Considering 8% rate of return, the future value of payments at 10th year would be as follows

Formula for calculating Future Value = (1+k)^n, where ‘k’ is the interest rate and ‘n’ is the number of periods

Formula for calculating Future Value Annuity Factor = [(1+k)^n-1]/k

Future Value factor for 10th year at 8% is = (1+0.08)^1^{0} = 2.1589

Future Value Annuity Factor for 10 years at 8% = [(1+0.08)^10-1]/0.08 =14.4866

Future value of Cost of Property (a) = 250,000*2.1589 = 539,725

Future Value of recurring costs (b) = 4000*14.4866 = 57946

Total value of Payments (c = a+b) = 597,671

2. Calulating Future Value of Payments in property taken on rent

Rent Cost = 18,000 p.a.

Annuity value of Rent payments for 10% at 8% = 18,000*14.4866 = 260,759

Total value of payments in 10 years when property taken on rent (d) = 260,759

The Breakdown Year 10 Sale value would be (c – d) = 597,671 – 260,759 = 336,913.

Therefore, the costs incurred under both the methods would be equal, if the property can be sold at 336,913 in the year 10

Over the 10 years, the annual price escalation in the house would be 289,725 (539,725-250,000) at 8% interest rate

iWriteHomework
Order NOW for a 10% Discount
Pages (550 words)
Approximate price: -

Why Us?

Top Quality and Well-Researched Papers

All ourbpapers are written from scratch. In fact, Clients who ask for paraphrasing services are highly discouraged. We have writers ready to craft any paper from scratch and deliver quality ahead of time.

Professional and Experienced Academic Writers

Our writers keeps you posted on your papers progress - providing you with paper outline/draft. You are also at liberty to communicate directly with your writer.

Free Unlimited Revisions

If you think we missed something, send your order for a free revision. You have 10 days to submit the order for review after you have received the final document. You can do this yourself after logging into your personal account or by contacting our support.

Prompt Delivery and 100% Money-Back-Guarantee

All papers are always delivered on time, in many cases quite ahead of time. In case we need more time to master your paper, we may contact you regarding the deadline extension. In case you cannot provide us with more time, a 100% refund is guaranteed.

Original & Confidential

We use several writing tools checks to ensure that all documents you receive are free from plagiarism. Our editors carefully review all quotations in the text. We also promise maximum confidentiality in all of our services.

24/7 Customer Support

Our support agents are available 24 hours a day 7 days a week and committed to providing you with the best customer experience. Get in touch whenever you need any assistance.

Try it now!

Calculate the price of your order

Total price:
$0.00

How it works?

Follow these simple steps to get your paper done

Place your order

Fill in the order form and provide all details of your assignment.

Proceed with the payment

Choose the payment system that suits you most.

Receive the final file

Once your paper is ready, we will email it to you.

Our Services

No need to work on your paper at night. Sleep tight, we will cover your back. We offer all kinds of writing services.

Essays

Essay Writing Service

No matter what kind of academic paper you need and how urgent you need it, you are welcome to choose your academic level and the type of your paper at an affordable price. We take care of all your paper needs and give a 24/7 customer care support system.

Admissions

Admission Essays & Business Writing Help

An admission essay is an essay or other written statement by a candidate, often a potential student enrolling in a college, university, or graduate school. You can be rest assurred that through our service we will write the best admission essay for you.

Reviews

Editing Support

Our academic writers and editors make the necessary changes to your paper so that it is polished. We also format your document by correctly quoting the sources and creating reference lists in the formats APA, Harvard, MLA, Chicago / Turabian.

Reviews

Revision Support

If you think your paper could be improved, you can request a review. In this case, your paper will be checked by the writer or assigned to an editor. You can use this option as many times as you see fit. This is free because we want you to be completely satisfied with the service offered.

× Contact Live Agents