Question

# Nabil is considering buying a house while he is at university. The house costs \$200,000 today....

Nabil is considering buying a house while he is at university. The house costs \$200,000 today. Renting out part of the house and living in the rest over his five years at school will bring him a net income of, after expenses, \$650 per month. He estimates that he will sell the house after five years for \$210,000. If Nabil’s MARR is 6 percent compounded monthly, should he buy the house? Use annual worth.

#### Homework Answers

Answer #1

Interest rate per month (i) = 6%/ 12 = 0.5%

n = 12 * 5 years = 60

Annual Worth = -200,000(A/P, 0.5%, 60) + 650 + 210,000(A/F, 0.5%, 60)

= -200,000(0.0193) + 650 + 210,000(0.0143)

= - 3,860 + 650 + 3,003

= -\$207

Since annual worth is negative, therefore, he should not buy the house.

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