A young couple has made a deposit of the first month's rent (equal to $1,000) on a 6-month apartment lease. The deposit is refundable at the end of six months if they stay until the end of the lease. The next day they find a different apartment that they like just as well, but its monthly rent is only $900. And they would again have to put a deposit of $900 refundable at the end of 6 months. They plan to be in the apartment only 6 months. Should they switch to the new apartment?

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Business

Clayton Griffin

17 October, 18:31

A young couple has made a deposit of the first month's rent (equal to $1,000) on a 6-month apartment lease. The deposit is refundable at the end of six months if they stay until the end of the lease. The next day they find a different apartment that they like just as well, but its monthly rent is only $900. And they would again have to put a deposit of $900 refundable at the end of 6 months. They plan to be in the apartment only 6 months. Should they switch to the new apartment?

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Julian Donovan · Answer 1

It would be wiser for the couple to stay in the old apartment and save $1400

Explanation:

If they stay until the end of the lease, total money that will be paid out is $1000 x 6 = $6000,

If they leave, they'll have to forgo $1000.

If they move to their new apartment, they'll pay $900 x 6 = $5400

total expenditure if they move to the new place at the end of the six months period will be, the $1000 that will not be refunded back to them on the old apartment, plus this new $5600 for six month's rent in this new apartment, and that will be a total of $6400.

It would be wiser for the couple to stay in the old apartment and save $1400