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In Millington, a city of 50,000 people, Mercedes Pedrosa, a [#permalink]
18 Nov 2006, 04:47

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Difficulty:

5% (low)

Question Stats:

100% (02:10) correct
0% (00:00) wrong based on 1 sessions

In Millington, a city of 50,000 people, Mercedes Pedrosa, a realtor, calculated that a family with Millingtonâ€™s median family income, $28,000 a year, could afford to buy Millingtonâ€™s median-priced $77,000 house. This calculation was based on an 11.2 percent mortgage interest rate and on the realtorâ€™s assumption that a family could only afford to pay up to 25 percent of its income for housing.
Which of the following corrections of a figure appearing in the passage above, if it were the only correction that needed to be made, would yield a new calculation showing that even incomes below the median family income would enable families in Millington to afford Millingtonâ€™s median-priced house?
(A) Millingtonâ€™s total population was 45,000 people.
(B) Millingtonâ€™s median annual family income was $27,000.
(C) Millingtonâ€™s median-priced house cost $80,000.
(D) The rate at which people in Millington had to pay mortgage interest was only 10 percent.
(E) Families in Millington could only afford to pay up to 22 percent of their annual income for housing.

Re: 1000CR:- Milliongton City [#permalink]
18 Nov 2006, 04:59

pawan82 wrote:

In Millington, a city of 50,000 people, Mercedes Pedrosa, a realtor, calculated that a family with Millingtonâ€™s median family income, $28,000 a year, could afford to buy Millingtonâ€™s median-priced $77,000 house. This calculation was based on an 11.2 percent mortgage interest rate and on the realtorâ€™s assumption that a family could only afford to pay up to 25 percent of its income for housing. Which of the following corrections of a figure appearing in the passage above, if it were the only correction that needed to be made, would yield a new calculation showing that even incomes below the median family income would enable families in Millington to afford Millingtonâ€™s median-priced house? (A) Millingtonâ€™s total population was 45,000 people. (B) Millingtonâ€™s median annual family income was $27,000. (C) Millingtonâ€™s median-priced house cost $80,000. (D) The rate at which people in Millington had to pay mortgage interest was only 10 percent. If they have to pay less mortage interest, then people with less median income also can afford house. (E) Families in Millington could only afford to pay up to 22 percent of their annual income for housing.

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D is the only choice that would help families with incomes below the median family income (< $28k) to buy the median priced house.

Ok, why are the other choices incorrect?

(A) Millingtonâ€™s total population was 45,000 people.

This will shift the median itself. We don't know what the new median would be but it would be lower than $28k and hence assuming 25% of an amount that's even lower than @28k would not help the families buy the median priced house.

(B) Millingtonâ€™s median annual family income was $27,000.

Again a lower median family income would not help

(C) Millingtonâ€™s median-priced house cost $80,000.

This again kills the lower than the median income families. Can't afford.

(D) The rate at which people in Millington had to pay mortgage interest was only 10 percent.

Of course here when you reduce the interest rate the total amount payable becomes less and hence more lower than median income families can be included in the ambit.

(E) Families in Millington could only afford to pay up to 22 percent of their annual income for housing.

Nope.. this lowers the disposable income that can be used for paying.

Yeah get out your econ caps....you have to pick the one that increases the consumers purchasing power, and a lower interest rate is the only one that does that
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