Personal Finance 1st Edition by Jack R. Kapoor

Exercise 5

Comparing Renting and Buying. Based on the following data, would you recommend buying or renting?

Rental Costs	Buying Costs
Annual rent, $7,380	Annual mortgage payments, $9,800 ($9,575 is interest)
Insurance, $145	Property taxes, $1,780
Security deposit, $650	Insurance/maintenance, $1,050
	Down payment/closing costs, $4,500
	Growth in equity, $225
	Estimated annual appreciation, $1,700

Assume an after–tax savings interest rate of 6 percent and a tax rate of 28 percent. (Obj. 2)

Step 1 of 3

Renting is defined as letting a person to use his goods for the temporary period in return for a rent of that service. It may be for the temporary use of any fixed asset in return for rental income.

Buying refers to the purchasing of any goods or fixed asset for own personal use. Thus buying refers to acquiring the right to own or posses any assets for personal use by making payment of the price to the seller.