you are considering an option to purchase or rent a single residential property. you can rent it for $2,600 per month and the owner would be responsible for maintenance, property insurance, and property taxes. alternatively, you can purchase this property for $200,900 and finance it with an 80 percent mortgage loan at 4 percent interest that will fully amortize over a 30-year period. the loan can be prepaid at any time with no penalty. you have done research in the market area and found that (1) properties have historically appreciated at an annual rate of 2 percent per year, and rents on similar properties have also increased at 2 percent annually; (2) maintenance and insurance are currently $1,509.00 each per year and they have been increasing at a rate of 3 percent per year; (3) you are in a 24 percent marginal tax rate and plan to occupy the property as your principal residence for at least four years; (4) the capital gains exclusion would apply when you sell the property; (5) selling costs would be 7 percent in the year of sale; and (6) property taxes have generally been about 2 percent of property value each year. based on this information you must decide



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