Question

You want to buy a house within 3 years, and you are currently saving for the down payment. You plan to save $8,000 at the end of the first year, and you anticipate that your annual savings will increase by 20% annually thereafter. Your expected annual return is 7%. How much will you have for a down payment at the end of Year 3? Do not round intermediate calculations. Round your answer to the nearest cent.

Answer 1

Year	Calculations	Cash Flow
1	=$8000	$           8,000
2	=$8000+20%	$           9,600
3	=$9600+20%	$         11,520
we need to calculate future value of payments
= [C1*(1+r)^2)]+ [C2*(1+r)^1)]+[C3*(1+r)^0)]
C1= year 1 cash flow
C2= Year 2 cash flow
C3= Year 3 cash flow
=[8000*(1+0.07)^2]+[9600*(1+0.07)^1]+[11520*(1+0.07)^0]
=$30951.20
you have for a down payment at the end of Year 3 =$30951.20