You would like to purchase a vacation home in 15 years. The current price of such...

You would like to purchase a vacation home in 15 years.
The current price of such a home is $275,000 but the price of these types of homes is rising at a rate of 3% per year.
How much would you have to invest in years 1 to 5, (the same amount in each year) in nominal terms to exactly pay for the vacation home if your investments earn 4% APR (compounded annually) in nominal terms?

Expert Solution

Vacation home purchase horizon in years	15
Current price	$ 275,000
Annual price increase	3.00%

Price after 15 years	Current price * (1+rate)^time
Price after 15 years	275000 * (1+3%)^15
Price after 15 years	428,441.04

Future value of annual deposit from year 1 to 5 at T15 should be equal to 428,441.04

Annual return	4%

Calculation of future value factors

Year	FV factor at t15= (1+rate)^(15-deposit year)
1	1.73168
2	1.66507
3	1.60103
4	1.53945
5	1.48024
Total	8.01748

Assumed annual deposit P
P*8.01748=	428,441.04
P=	=428441.039/8.01748
P=	53,438.37
So annual deposit should be 53,438.37

jeff jeffy answered 4 months ago

You would like to purchase a vacation home when you retire 10 years from now. The...

You would like to purchase a vacation home when you retire 10 years from now. The current cost of the homes that interest you is $234,217; however, you expect their price to rise at 4.74% per year for the next 10 years. How much must you save each year in nominal terms (the same amount each year) for 15 years, starting next year, to just be able to pay for the vacation home if you earn 3.20% APR (compounded annually)...

a. You would like to purchase a vacation home when you retire 7 years from now....

a. You would like to purchase a vacation home when you retire 7 years from now. The current cost of the homes that interest you is $290,581; however, you expect their price to rise at 2.13% per year for the next 7 years. How much must you save each year in nominal terms (the same amount each year) for 15 years, starting next year, to just be able to pay for the vacation home if you earn 4.54% APR (compounded...

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)...

The price of a vacation home is currently $345,866. If the price of vacation homes is...

The price of a vacation home is currently $345,866. If the price of vacation homes is increasing at a rate of 3.25% per year, how much would a vacation home cost in 6 years?

You would like to purchase a home and are interested to find out how much you...

You would like to purchase a home and are interested to find out how much you can borrow. When your lender calculates your debt to income ratio, he determines that your maximum monthly payment can be no more than $4,349. You would like to have a 30 year fully- amortizing loan and the interest rate offered on such a loan is currently 3%. Given these constraints, what is the largest loan you can obtain? Round your answer to the nearest...

If you have or would like to purchase a home, discuss the kinds of financial information...

If you have or would like to purchase a home, discuss the kinds of financial information you should consider when deciding to purchase a home. For example, the book talked about a 30-year Mortgage Loan. Why might you select this over a 10 or 15-year loan or vice versa? What are the advantages of each? What other types of things should a person consider when purchasing a home?

You would like to save $50,000 for a down payment on a home in five years....

You would like to save $50,000 for a down payment on a home in five years. How much do you need to have saved today if your investments are expected to earn a return of 5% per year? $43,133 $37,500 $38,960 $50,000 $39,176

You would like to buy a Mazda Miata convertible for a purchase price of $27,500. You...

You would like to buy a Mazda Miata convertible for a purchase price of $27,500. You will take out a loan for the entire amount. You have excellent credit so you can secure a loan at 5% APR for 3 years. What is your monthly payment? How much will you pay in interest if you pay off the loan as scheduled? Now suppose instead you want to consider a 5 year loan at 6.5% APR. What is your monthly payment?...

You would like to have $75,000 in 15 years. To accumulate this amount, you plan to...

You would like to have $75,000 in 15 years. To accumulate this amount, you plan to deposit an equal sum in the bank each year that will earn 8 percent interest compounded annually. Your first payment will be made at the end of the year. a. How much must you deposit annually to accumulate this amount? b. If you decide to make a large lump-sum deposit today instead of the annual deposits, how large should the lump-sum deposit be? ...

You would like to have $100,000 in 15 years. To accumulate this amount, you plan on...

You would like to have $100,000 in 15 years. To accumulate this amount, you plan on depositing each year an equal sum into your IRA, which is expected to earn a 7% rate of return compounded annually. Your first deposit will be made immediately and you will make a total of 15 equal annual deposits. In addition to the 15 equal deposits, you will make a one-time $20,000 deposit into your IRA at the end of 5 years. How much...

Question