Ralph Harder has been transferred to Regina for five years. He has found an attractive house that he can buy for $180,000 or rent for $1000 per month, payable at the beginning of each month. He estimates that the resale value of the house in five years will be $200,000 net of the selling commission. If he buys the house, the average (month-end) costs for repairs, maintenance, insurance, and property taxes will be $300. Should Mr. Harder rent or buy the house if mortgage rates are:
a. 7% compounded monthly?
b. 6% compounded monthly?