Problem
Case Study: Time Value of Money - A Home Investment Decision Dilemma
A. Discuss the rationale and significance of the time value of money.
B. Using the time value of money framework, determine the equated monthly instalments (EMI) in the case that Jain opts to buy the apartment.
C. Using the time value of money framework, determine the total monthly payments for the proposed alternative to buy (taking into account opportunity cost and taxes if possible). Using the time value of money framework, determine the total monthly payments for the proposed alternative to rent.
D. Determine the future capital gain/loss incurred after modelling the selling price of the apartment, using a conservative 7 per cent annual appreciation in housing prices. Determine the present value of such capital gain/loss after taking into account the time value of money.
E. Based on your analysis, as Jain, would you decide to buy or to rent?