Question
Antoon, an exuberant young engineer, is considering buying a new apartment similar to the one he is currently renting. He received an offer from his
Antoon, an exuberant young engineer, is considering buying a new apartment similar to the one he is currently renting. He received an offer from his bank to finance the new apartment purchase. The bank will pay the apartment price of $45,500. In exchange, Antoon will pay the bank back in yearly installments for 20 years. He will pay $5,040/year for the first 10 years, and $2400/year for the following 10 years. His current rent is $2,520/year. He expects that rent will increase by 10% every 5 years for the next 20 years. Antoons MARR is 3% per year (this is the interest he can earn from a saving account). What should Antoon do (buy or continue renting) to maximize his wealth over the next 20 years? Assume that the new apartment will loose 30% of its $45,500 market value after 20 years.
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