Answer to Question #155574 in Economics for Hibba Saleem

Question

You are planning to buy a house in Gulburg green, you can either lease the house from the

society or purchase it with a six-year loan. The house you wish to buy costs Rs.30,000,000. The

dealer has a special leasing arrangement where you pay Rs.1,700,000 today and Rs.450,000 per

month for the next six years. If you purchase the house, you will pay it off in monthly payments

over the next six years at required rate of return of 6 percent per annum. You believe that you

will be able to sell the house for Rs.35,000,000 in six years.

Required to calculate and answer the following :

1. What option will be beneficial for you either buying house in single payment or buying

on lease.

2. Assume you purchase the house in onetime payment and sold it for 35,000,000 after six

years on same interest rate compounding monthly will this be a good and profitable deal

for you.

Answer 1

1. Using leasing you will pay:

$1,700,000 + 450,000×12×6 = Rs. 34,100,000.$

Using loan you will pay:

$30,000,000×(1 + 0.06/12)^{6×12} = Rs. 42,961,328.35.$

So, the first option will be beneficial for you.

2. If you purchase the house in onetime payment and sold it for 35,000,000 after six years on same interest rate compounding monthly, then this won't will this be a good and profitable deal for you.