Suppose that Jennifer and Megan are both buying a beach vacation home, each with the same selling price. Megan is paying for the home by taking out a 30-year mortgage at an annual interest rate of 5%. Over the course of her mortgage, Megan will have paid $300,000 in interest alone. Jennifer is considering using an inheritance received and paying cash for the home. If the current annual market interest rate paid on investments is 6% (i.e., market annual rate of return is equal to 6%), then is Jennifer better off paying cash for her vacation home or taking out the same mortgage as Megan? Explain.

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The Answer of Suppose that Jennifer and Megan are both buying a beach vacation home, each with the same selling price. Megan is paying for the home by taking out a 30-year mortgage at an annual interest rate of 5%. Over the course of her mortgage, Megan will have paid $300,000 in interest alone. Jennifer is considering using an inheritance received and paying cash for the home. If the current annual market interest rate paid on investments is 6% (i.e., market annual rate of return is equal to 6%), then is Jennifer better off paying cash for her vacation home or taking out the same mortgage as Megan? Explain.

Suppose That Jennifer and Megan Are Both Buying a Beach