Housing Prices Consider a 1,500 square foot house, which rents monthly for $0.75 per square foot. Prevailing interest rates are 5 percent, and remain constant (a) Assuming the rent is constant, and that you cannot resell the home, what is the most you’d be willing to pay for it? (b) Now suppose you could sell the house after 4 years, what is the most you’d be willing to pay for it? (c) Suppose that the house requires a constant annual maintenance cost of $500 to last forever, how much are you willing to pay for it today? (d) If rent is not constant, but grows at a rate of 0.5 percent per year, how much would you pay for the house?
Housing Prices Consider a 1,500 square foot house, which rents monthly for $0.75 per square foot. Prevailing interest rates are 5 percent, and remain constant (a) Assuming the rent is constant, and that you cannot resell the home, what is the most you’d be willing to pay for it? (b) Now suppose you could sell the house after 4 years, what is the most you’d be willing to pay for it? (c) Suppose that the house requires a constant annual maintenance cost of $500 to last forever, how much are you willing to pay for it today? (d) If rent is not constant, but grows at a rate of 0.5 percent per year, how much would you pay for the house?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
Housing Prices
Consider a 1,500 square foot house, which rents monthly for $0.75 per square foot. Prevailing interest rates
are 5 percent, and remain constant
(a) Assuming the rent is constant, and that you cannot resell the home, what is the most you’d be willing
to pay for it?
(b) Now suppose you could sell the house after 4 years, what is the most you’d be willing to pay for it?
(c) Suppose that the house requires a constant annual maintenance cost of $500 to last forever, how much
are you willing to pay for it today?
(d) If rent is not constant, but grows at a rate of 0.5 percent per year, how much would you pay for the
house?
Note:-
- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism.
- Answer completely.
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