You Decide to Move to the Mountains of Colorado and Want

Multiple Choice

You decide to move to the mountains of Colorado and want to know what would be a good offering price on a home, but you know you will only own it a year. Fortunately, you are armed with the simple residential investment equation. You have the following information: the real interest rate is 4 percent; the depreciation rate of homes is 5 percent; average rent is $1,000; there is no expected capital gain; and you will have a 20 percent down payment. You offer the owner, rounding to the nearest dollar:

A) $25,000.
B) $125,000.
C) $4,167.
D) $17,241.
E) $50,000.