You are considering buying a $350,000 house. You have saved $70,000 for the down payment and $8,000 for the closing costs. The mortgage rate is 4.50% p.a., monthly compounding. The mortgage is to be amortized over twenty-five years. You expected the house price to growat the rate of 4%per year. The property tax is 1.50%of the house price at the beginning of the year. The maintenance cost is expected to be $6,500/year (growing by 2% per year). Home insurance premium is $750/year (growing by 2% per year). All of these tax and expenses are payable at the end of each year.Alternatively, you can rent the same house for $1,700/month (inclusive of tenant’s insurance premium).

The rent will increase by 2% per year. Assume that the rent for the whole year is paid at the end of each year. The after-tax rate on return on cash investment is 4% p.a., annual compounding.

- Create a spreadsheet to compare the cash flows under the buying and the renting alternatives.

- How much equity would you have built up if you buy your home and sell it after five years?

- Which is the better alternative after one year? five years? ten years?