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You would like to purchase a vacation home in 6 years. The current price of such...

You would like to purchase a vacation home in 6 years.
The current price of such a home is $500,000 but the price of these types of homes is rising at a rate of 3% per year.
How much would you have to invest today in nominal terms to exactly pay for the vacation home if your investments earn 5% APR (compounded annually) in nominal terms?

A. $461,548

B. $373,108

C. $597,026

D. $445,510

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Answer #1

PV = FV:(1+i/n)^nt r=rate per period t = years x compounding Invest = pv = $445,510 (500,000*1.0346 )+ (1+5%)^(6)

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