Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

I'm unsure with how to calculate New Break Even Rent, can someone please help me? The question: Go to http://www.nytimes.com/interactive/2014/upshot/buy-rentcalculator.html?ref=economy&_r=0&abt=0002&abg=0 (In case this link does

I'm unsure with how to calculate "New Break Even Rent", can someone please help me?

The question:

Go to http://www.nytimes.com/interactive/2014/upshot/buy-rentcalculator.html?ref=economy&_r=0&abt=0002&abg=0

(In case this link does not work: go to www.nytimes.com and search for "Upshot Is It Better to Rent or Buy")

Keep all default assumptions and assume the home you want buy costs $1,250,000. The resulting "break-even rent" is then $4,032 (note: you can simply enter the home's price instead of adjust it on the graph). We are now interested in the effect of various variables on the "break-even rent."

Calculate the "break-even-rent-elasticities" of the

a) mortgage rate

b) down payment

c) home price growth rate

d) rent growth rate

e) investment return rate

f) inflation rate

g) property tax rate

h) marginal (income) tax rate

For each variable assume an increase by 10%. For variables that are measured in % use a percentage of the percentage. For instance, if inflation were 4% a 10% increase results in a 4.4% (and not a 14%) inflation rate. Also, for each variable hypothesize why the "break-even rent" will be increasing or decreasing (just one sentence). Then relate this to the resulting percentage change in the break-even rent. Note: Make sure you always go back to the default adjustments when you calculate the elasticity of a new variable.

image text in transcribed
Variable Variable * Break New Break | % change Elasticity 1.1 Even Rent Even Rent BreakEven R 0.0367 0.04037 4032 mortgage rate bi down 0.20 0.22 4032 payment c) home 0.03 0.033 4032 price growth rate dj rent 0.025 0.0275 4032 growth rate 0.04 0.044 4032 investment return rate f) inflation |0.02 0.022 4032 rate gj property 0.0135 0.01485 4032 tax rate hj marginal | 0.2 0.22 4032 (income) tax rate

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access with AI-Powered Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Thomas Calculus Early Transcendentals

Authors: Joel R Hass, Christopher E Heil, Maurice D Weir

13th Edition

978-0321884077, 0321884078

Students also viewed these Economics questions

Question

Give another example of adverse selection.

Answered: 1 week ago

Question

The symbol Answered: 1 week ago

Answered: 1 week ago