You are being assigned to a distant city for a five-year period. You find you can either rent a suitable house to live in on a five-year lease for $1,050 per month or you can buy the same house for $105,000. The average ownership costs over the five-year period are estimated as follows:

Real estate taxes are 3 percent of purchase price per year.

Maintenance, $150 per month. Insurance, $300 per year.

Rebate on income tax, $1,200 per year.

(a) If i = 9 percent ad the house is purchased for cash (no mortgage), what would the minimum sales price have to be in five years to reach the break-even point with renting? (Ans. $110,400)

(b) If the house could be bought with no down payment and an 8 percent, 30-year mortgage loan (i = 8% for the mortgage, 9% for everything else), what would the break-even selling price be in five years? (Ans. $104,200)

Note: Assume all series payments are made at EOY, and there are no taxes except as listed in the problem.