The Story: You find a comfortable three‐bedroom condo for $4,000 per month. Over the winter, an almost identical unit becomes available for sale with an asking price of $600,000. You like the condo that you are renting, but it's not big enough. In the future, you would like to move to a house in five or 10 years. You realize that you are presented with an opportunity to apply some of the analytical tools that you have acquired in this class. You decide to analyze the buy-versus-rent decision.


If you decide to purchase the condo:

Monthly fees will be $1055 per month

Property Taxes: $3600 per year

Repairs: $600 per year

You'll also have to put down a 20% down payment.

Transaction costs will also cost 3% of the purchase price.

Closing fees are $2000

When you sell the condo:

Realtor fees of 5%

$2,000 in closing costs

and Local lenders have quoted mortgage rates of 4.00% APR for the financing of the remaining purchase price. The best rates have an amortization rate over 25 years with monthly payments. The money needed for the down payment and closing costs is currently invested and is earning 4.00%.

The Questions are:
1. Determine the required monthly payments for the mortgage.

2. Determine the "opportunity" costs, on a monthly basis, of using the required funds for closing (i.e., down payment plus all closing costs), rather than leaving those funds invested and earning the monthly effective rate determined earlier.