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) on your investments?

Expert Solution

Firstly, we need to calculate the cost of vacation house after 10 years.

Calculation is as follows:

Formulas:

Now, we need to calculate the amount required to be saved each year at an APR of 3.20% to be able to just buy the vacation house.assuming the cost of the house will remain constant after 10th year.

We can calculate this using PMT function in excel wherein FV will be the cost of the vacation house

Calculation is as follows:

Formulas:

jeff jeffy answered 2 years ago

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