A couple in Ruston, Louisiana, must decide whether it is more economical to buy a home or to continue to rent during an inflationary period. Presently the couple rents a one-bedroom duplex for $450 a month plus $139 a month in basic utilities (heating and cooling). These costs tend to increase with inflation, and with the projected inflation rate of 5%, the couple's monthly costs per year over a 10-yearplanning horizon are as follows.

The couple would like to live on the north side of the town, where an average home of 150 m2 of heating area costs $75,000. A local mortgage company will provide a loan for the property provided the couple makes a down payment of 5% plus estimated closing costs of 1% cash for the home. The couple prefers a 30-year fixed-rate mortgage with an 8% interest rate. Based on the couple's gross annual income, the couple falls in the 30% marginal income tax rate (federal plus state), and as such, buying a home will provide them some tax write-off. It is also estimated that the basic utilities for the home inflating at 5% will cost $160 per month; insurance and maintenance also inflating at 5%, will cost $50 per month. The home will appreciate in value about 6% per year. Assuming a nominal interest rate of 15.5%, which alternative will be more attractive to the couple on the basis of the present worth analysis?

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1 23 4 5 67 8 9 10 Ren 450 473 496 521 547 574 603 633 66S 698 Utilites 139 146 153 16 69 177 186 196 205 216