Reference no: EM132862896

Question - Kris's parents are considering two housing options for their son while he attends university.

The first option is to rent a one bedroom apartment at a cost of $900 per month, including all utilities for 9 months of the year.

The other option is to buy a three bedroom home for $325,000 that would require a 10% down payment with a mortgage amortized over 25 years at an annual rate of 4.35% compounded semi-annually for a 5 year term. They could rent the two bedrooms to other students and generate $8,000 a year. The cost of taxes, utilities, and maintenance would be $3,600 per year, and they believe the home will be worth 5% less in five years.

Required -

1. What would the cost of renting be for the five years?

2. What were the monthly mortgage payments?

3. What was the house worth after 5 years? Fill in all the appropriate imputes in the TVM Finance solver.

4. How much is still owed on the house after five years?

5. What was the cost to the parents to subsidize the house each year?