Answer to Question #134462 in Algebra for joseph se

Question

Dean Baker, co-director at the Center for Economic and Policy Research in Washington, D.C., suggests that the buy-versus-rent question can be answered using the price-to-rent ratio. Find two houses of similar size and quality in comparable neighborhoods, one for sale and the other for rent. Divide the price of the house for sale by the total cost of the rental for 1 year. If the quotient is higher than 20, renting might be the better option. If the quotient is below 15, buying might be the better option.

1. A house in Orlando, Florida, is priced at $150,000. The rent on a comparable house is $850 per month. Find the price-to-rent ratio. Round to the nearest tenth.

2. Does the ratio suggest that you buy or rent a home in Orlando?
A. Yes
B. No

Answer 1

The rent is $850 per month or $$850⋅12=$10200$ − the total cost of the rental for one year.

Let the ratio is K.

$K=\frac{150000}{10200}=\frac{250}{17}\approx14.7$.

Because the $K<15$, it means, that buying might be the better option.