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Economic Problem

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whitehorsey's picture
Joined: Sep 2009
Economic Problem

A millionaire rents a house for a constant $8,000 a year and keeps his millions in a money market fund that always earns 5% a year. He is given the option of buying the house for $200,000. If he buys the house, assume he can sell it anytime in the future for exactly $200,000. Should he buy the house or keep renting, and why? (Ignore taxes and maintenance costs.) What is the opportunity cost of buying the house? Would your answers to the above questions change if the rent was $11,000 a year? Please explain.

pianogirl2422's picture
Joined: Mar 2005

Exactly which part of the problem do you need help with?

[=RoyalBlue][=Comic Sans MS]
"I refuse to prove that I exist," says God, "for proof denies faith, and without faith I am nothing."
"But," say Man, "the Babel fish is a dead giveaway, isn't it? It could not have evolved by chance. It

paulcllngwd's picture
Joined: Nov 2010

Economic problem is one of the biggest problem of every country and i think every country goverment should take some preventive measure to control economical problems

garfieldw1's picture
Joined: Apr 2013

If he buys the house, the opportunity cost is 200000*5%=10000 per year>8000 so he should not buy the house.

computer101's picture
Joined: Aug 2013

weird question

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