You are looking to get married and buy a house in 5 years. You estimate that...

Question

Question

You are looking to get married and buy a house in 5 years. You estimate that you will need $85,000 in real dollars to buy your house at that time. The nominal return on your investment is 6% and the rate of inflation is 2.1%.

Calculate the amount of money you would need to deposit every year (for the next five years) to achieve your goal (hint: you should use the real rate of return, as you want to account for inflation).

Answer 1

Answer #1

a)

Real rate of return (1+Nominal rate):(1+Inflation rate)-1 Here, Nominal rate Inflation rate 6% 2.1% Real rate of return 3.82%

b)

Deposit in each year (P) FVA:([(1+r)^n-1]=r) Here, 3.82% A Interest rate per annum B Number of years C Number of payments per

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Answer 2

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