Answered: Question 1 What would be the better…

Pfin (with Mindtap, 1 Term Printed Access Card) (mindtap Course List)

7th Edition

ISBN:9780357033609

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

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

Chapter13: Investing In Mutual Funds, Etfs, And Real Estate

Section: Chapter Questions

Problem 9FPE

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Question

Pierre is deciding whether he should rent or buy a house. Assuming that renting an apartment will cost of him $1,500 per month and the mortgage on a house is $3,500 per month.

If he rents, he considers investing the difference between monthly rental cost and mortgage cost in a Balanced Fund earning 8% per year. If the house he purchases in Oshawa, Ontario costs about $800,000 and he intends on paying off the mortgage after 25 years.

If he decides to sell the house in 25 years and the house appreciates at a rate of 4% per year:

Question 1
- What would be the better outcome, renting or buying and by how much? (Show your work and include all financial calculators)
- Calculate the investment value of renting versus home ownership.
Question 2
- Based on your answer in Question 1, what factors would make you change your mind and choose the other.
- List a minimum of 3 reasons or factors and elaborate as to why.

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