You would like to purchase a vacation home when you retire 6 years from now. The...

You would like to purchase a vacation home when you retire 6 years from now. The current cost of the homes that interest you is $298,526; however, you expect their price to rise at 3.16% per year for the next 6 years. How much must you save each year in nominal terms (the same amount each year) for 6 years, starting next year, to just be able to pay for the vacation home if you earn 3.82% APR (compounded annually) on your investments?

Expert Solution

Cost of home in 6 years = 298,526(1.0316)⁶ = $359,790.89

Calculating Annual Saving Required,

Using TVM Calculation,

PMT = [PV = 0, FV = 359,790.89, N = 6, I = 0.0382]

PMT = $54,488.72

Annual Saving = $54,488.72

jeff jeffy answered 2 years ago

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