Sarah found her dream lakefront home,valued at $250,000.She plans to buy a home just like it when she retires in 15 years.Sarah can earn 11% per year on her investments.The price of the house will increase 3% per year for the next 15 years.How much must she invest at the end of each of the next 15 years to finance the purchase?

Question

Quizplus · Accepted Answer

Step 1 - Calculate the future value of the home in 15 years.
FV = PV × 11ea7fdb_fc16_0c51_a768_373b98db53d4_TB2902_11 FV = 250,000 × (1.03 11ea7fdb_fc16_0c52_a768_2347179b0431_TB2902_11 = $389,491.85
Step 2 - Calculate how much you will need to invest for the future.
FV = PMT × 11ea7fdb_fc16_0c53_a768_1f28bfd7bf3f_TB2902_11 PMT = FV / 11ea7fdb_fc16_0c54_a768_b1d1de98ac48_TB2902_11 PMT = 389,491.85 / 11ea7fdb_fc16_0c55_a768_8ddb26ee4d4c_TB2902_11 = $11,320.67
Using a financial calculator:
N = 15, I/Y = 11, PV = 0, FV = -389,491.85, cpt PMT = $11,320.67

Sarah Found Her Dream Lakefront Home,valued at $250,000