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In Millington, a city of 50,000 people, Mercedes Pedrosa, a [#permalink]

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18 Jun 2005, 07:41

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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.

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?

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

Doesn't take a finance major to see that we're looking for an answer choice in which an even poorer family can still afford to buy a house based on the formulation described.

(A) is irrelevent to the affordability formula, and B/C/E introduce circumstances that would make it more exepensive to buy a house.

Only (D) has the effect of making mortgages cheaper owing to a lower interest rate, and therefore accessible to even lower-income families than the median.