Costs of Automobiles Assume that you own a car that gets 20 miles per gallon on average. If you typically drive 16,000 miles per year and the price of gasoline goes up from \($2.65\) per gallon to \($2.95\) per gallon, what is your additional cost per year?

Rent vs. Buy Maria is comparing two housing alternatives. She can rent an apartment for \($800\) per month, which equates to

\($9,600\) per year. The security deposit is $1,200

(1[1⁄2] months’ rent). Renter’s insurance is \($140\) per year.

Alternatively, she can buy a condominium and incur the following costs: annual mortgage payments, $7,200

(of which \($5,966\) is interest); property tax, $1,300; insurance and maintenance, $500; down payment and closing costs, $5,000; annual increase in value, $4,000.

She earns 2 percent on her savings account after tax, and her marginal tax rate is 25 percent.

1. Based on her first-year costs, which alternative will have a lower cost?

2. What would you recommend to Maria and why?