Share
Explore BrainMass

Explicit opportunity cost

Oliver Kamp has just made the final payment on his mortgage. He could continue to live in the home; cash expenses for repairs and maintenance (after any tax effect) would be $500 monthly. Alternatively, he could sell the home for $200,000 (net of taxes), invest the proceeds in 5% municipal tax-free bonds, and rent an apartment for $12,000 annually. The landlord would then pay for repairs and maintenance.
Prepare two analyses of Kamp's alternatives, one showing no explicit opportunity cost and the second showing the explicit opportunity cost of the decision to hold the present home.

Solution Preview

Oliver Kamp has just made the final payment on his mortgage. He could continue to live in the home; cash expenses for repairs and maintenance (after any tax effect) would be $500 monthly. Alternatively, he could sell the home for $200,000 (net of taxes), invest the proceeds in 5% municipal tax-free bonds, and rent an apartment for $12,000 annually. The landlord would then pay for repairs and maintenance.
Prepare two analyses of Kamp's ...

Solution Summary

The solution discusses explicit opportunity cost. Cost of the decision to hold the present home is determined.

$2.19