AnswersFinancial Math - MA2007Topic TestQuestion 138
138
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Topic Test

Question 138 • Financial Math - MA2007

Marquet is relocating to an area where she will be attending college. She finds a townhome with an option to rent or buy. The conditions of each are shown below.Rent: Move-in cost of $1,350 and monthly payment of $795.Buy: Move-in cost of $8,235 and monthly payments of $750.Marquet plans to stay in the area for the 5 years it will take her to get a graduate degree, so she decides to buy. Choose the best evaluation of Marquet’s decision.

Answer
A
Since the costs would be the same over the 5 year period, she will have made a good decision if the property value does not decrease.
B
She made a fairly good decision. Buying the townhome will be cheaper over the 5 year period as long as she doesn’t have major repairs to make.
C
She made a poor decision if the property value does not increase. Renting the townhome would be cheaper over the 5 year period.
D
There is not enough information given to determine which option is best.

Explanation

Over 5 years, renting costs $1,350 + ($795 × 60) = $49,050. Buying costs $8,235 + ($750 × 60) = $53,235, which is $4,185 more before considering repairs or any change in the townhome’s value. If its value does not increase, renting is cheaper, so choice C is the best evaluation.

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