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Mrs  Johnson has just moved to London with her new job, in which she received a significant salary increase

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Mrs  Johnson has just moved to London with her new job, in which she received a significant salary increase. Being new to the city, she is now trying to decide whether she should rent an apartment or buy one. She has spent the first weekend looking at different options and has shortlisted two options.

Option 1: Rent an apartment, which would cost her a total of 2,000£ per month including everything. Every year the rent is due to increase by 2.5%. The contract is perpetual meaning she could theoretically stay there forever if she wanted.

Option 2: Buy an apartment, which costs 900,000£ with an initial down payment of 100,000£ and a 30-year loan for the remaining 800,000£. The loan would carry an interest of 1.5%. After 30 years she would own the apartment 100% .

Assumptions

1. She will buy or rent the apartment on the 1st of January

2. Payments happen at the end of each period

Question.1

a. In case Mrs. Johnson chooses option 2, how much will she have to pay each month for her loan?

b. In option 1, Mrs. Johnson is unsure how much rent she will have to pay in the future. Show the monthly rent per year from year 1-10