Question

Score: 0 of 1 pt 9 of 21 (4 complete) HW Score: 19.05% , 4 of 21 pls Problem 5-25 (similar to) Question Help (Future value of an annuty) In 11 years you are planning on retiring and buying a house in Oviedo, Florida The house you are looking at cunently costs $100,000 and is expected to increase in value each year at a rate of 4 percent. Assuming you can eam 11 percent annually on your imvestments, how much must you invest at the end of each of the next 11 years to be atle to by your dream home wten you retire? a. If the house vou are looking at currently costs $100,000 and is expected to increase in value each year at a rate of 4 percent, what will the value of the house be when you retire in 11 years? (Round to the nearest cent)

Answer 1

a.Value of house after 11 years = Present value(1+Growth rate)^Number of years

= 100,000(1.04)^11

= $153,945.41

Let amount saved at the end of each year be x

Future value of annuity = Annual amount*[{(1+r)^n - 1}/r]

153,945.41 = x*[{(1.11)^11 - 1}/0.11]

153,945.41 = 19.56143x

x = $7,869.84

Hence, amount required to be saved each year = $7,869.84