Time Value of Money: Buy versus Rent by Sean Cleary and Stephen Foerster, Ivey Publications

Questions to be Answered
1 Determine the Required Monthly Payments for the mortgage
2 Calculate Monthly effective rate using the formula r=(1+i/n)^{n}-1 for effective rate.
3 Determine the "opportunity" costs, on a monthly basis, of using the required funds for closing (i.e., down payment
rather than leaving those funds invested and earning the monthly effective rate determined in 2.
4 Determine monthly additional payments required to buy versus rent.
5 Determine the principal outstanding on the mortgage after:
a. Two years
b. Five Years
c. Ten Years
6 Determine the "net" future gain or loss after two, five and 10 years under the following scenarios, which Rebecca Y
determined are possible after some "due diligence" regarding future real-estate prices in the Toronto condo marke
a. The condo price remains unchanged
b. The condo price increases annually by the annual rate of inflation of 2 percent year over the next 10 years.
c. The condo price increases annually by an annual rate of 5 percent per year over the next 10 years.
7 As Rebecca Young, what decision would you make? Describe the qualitative considerations that could factor into yo

Initially Q5
Purchase Price
Legal fees
Deed transfer tax (@3%)
Down Payment (20%)
Total Due at Closing
Amortization Period (Years)
Payment Frequency
Number of Payments remaining

Q1 Mortgage Amount
Quoted Rate
Q2 Eff. Monthly rate

Q3

Q4
Q7
tephen Foerster, Ivey Publications, August 11, 2014

unds for closing (i.e., down payment plus all closing costs),
e determined in 2.

ollowing scenarios, which Rebecca Young has

e prices in the Toronto condo market:

nt year over the next 10 years.

ver the next 10 years.
nsiderations that could factor into your decision.

Q6