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Question (10 points) Consider an exquisite house in the Manoa Valley. Answer the following questions. Price: $638,000 Rent: $2,100/ month Annual property tax: $6,692 Home insurance: \$223/month No HOA fee Annual maintenance cost: 1% of the price Annual depreciation by aging: 2% Annual market-wide appreciation: 4% Down payment: 20% of the price (Loan to value ratio =80% ) Equity cost of capital (opportunity cost): 14.138% Mortgage interest rate per year: 4.138% Hint: UserCost=P[capitalcostLi+(1-L)e+prop.tax+mainte.m+netdep.da] P Home price L Loan-To-Value Ratio (LTV) i Mortgage interest rate per year (annual compounding) e Opportunity cost (rate) of home equity per year (annual compounding) Property tax rate per year m Maintenance cost rate per year d Annual depreciation rate due to aging a Expected rate of market-wide appreciation per year a. (5 points) Evaluate whether you should buy or rent the above house based on the Rent or Buy lecture in week 3 . An answer by another method will earn no point. Clearly show your calculation and the reason for your decision. b. (5 points) What is the purchase price that makes you indifferent between buying and renting? Assume no change in property tax and insurance. Show your calculation. Question (10 points) Consider an exquisite house in the Manoa Valley. Answer the following questions. Price: $638,000 Rent: $2,100/ month Annual property tax: $6,692 Home insurance: \$223/month No HOA fee Annual maintenance cost: 1% of the price Annual depreciation by aging: 2% Annual market-wide appreciation: 4% Down payment: 20% of the price (Loan to value ratio =80% ) Equity cost of capital (opportunity cost): 14.138% Mortgage interest rate per year: 4.138% Hint: UserCost=P[capitalcostLi+(1-L)e+prop.tax+mainte.m+netdep.da] P Home price L Loan-To-Value Ratio (LTV) i Mortgage interest rate per year (annual compounding) e Opportunity cost (rate) of home equity per year (annual compounding) Property tax rate per year m Maintenance cost rate per year d Annual depreciation rate due to aging a Expected rate of market-wide appreciation per year a. (5 points) Evaluate whether you should buy or rent the above house based on the Rent or Buy lecture in week 3 . An answer by another method will earn no point. Clearly show your calculation and the reason for your decision. b. (5 points) What is the purchase price that makes you indifferent between buying and renting? Assume no change in property tax and insurance. Show your calculation