Imagine that you are trying to evaluate the economics of purchasing a condominium to live in during college rather than renting an apartment. If you buy thecondo, during each of the next 4 years you will have to pay property taxes and maintenance expenditures of about RM6,000 peryear, but you will avoid paying rent of RM10,000 per year. When you graduate 4 years fromnow, you expect to sell the condo for RM125,000 after taxes. If you buy thecondo, you will use money you have saved that is currently invested and earning a 4% annualafter-tax rate of return. Assume for simplicity that all cash flows (rent, maintenance, etc.) would occur at the end of each year.

1. Draw a timeline showing the cashflows, theirtiming, and the required return applicable to valuing the condo.
2. What is the maximum price you would be willing to pay to acquire thecondo? Explain.