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Oct 16, 2017
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Oct 16, 2017
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OK. Now question F is perhaps the most "difficult". It is asking "How much did Mike's parents subsidize the rent over 5-year period?" In other words, how much EXTRA money did his parents spent in buying the house, instead of just renting him a room for $750 per month, as Jordan's parents did for their son? Well, Jordan's parents rented him a room for $750 per month for 5 years or 60 months. So, $750 x 60 =$45,000, which is what you got in question A. Mike's parents could have done the same thing, but instead went and purchased a house which turned out to be much more expensive than just renting a room for their son.

So, we have to find out how much extra they spent on their son by buying a house. 

First, when they bought the house for $285,000, remember they paid 10% down payment. That means they spent: $285,000 x 10% =$28,500 as a down payment. Right? Then, your question says it cost them an average of $3,000 per month in maintenance, bills, mortgage payments, taxes....etc. So, you have: $3,000 x 60 months =$180,000. So, $180,000 + $28,500 (down payment) =$208,500. This is how much the house cost them over 5 years. But, remember that rented 2 room in house for $600 each per month, or $1,200 per month x 60 months =$72,000 which you can subtract from their total expenses: Or $208,500 - $72,000 =$136,500. This is the net expense that Mike's parents spent on the house. As you remember, they could have rented him a room for $750 per month or $45,000 over 5 years. So, Mike's parents " subsidized" his rent to the tune of : $136,500 - $45,000=$91,500. This is how much EXTRA they spent on their son's rent over 5 years. Or $91,500 / 60 months=$1,525 extra per month they spent subsidizing their son's rent.

And that is the best that I can do for you. Good luck.

Oct 16, 2017

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