Question

Today is date 0. In 10 years, you plan to retire and buy a house in Norman, OK. In terms of a time line, you will retire at the end of year 10. The house you are looking at currently costs $200,000 and is expected to increase in value each year at a rate of 5% compounded annually. Assuming you can earn 10% annually on any investment you might make, how much must you invest at the end of each of the next 10 years to be able to buy your dream home when you retire?

Answer 1

Answer:

$20,441.67

Explanation:

the present value of your house is $200,000, its future value = $200,000 x (1 + 5%)¹⁰ = $325,778.93

you can earn a 10% annual interest rate for 10 years, that means that we can use a future value of an annuity factor = 15.937

your annual investment = future value of the house / annuity factor = $325,778.93 / 15.937 = $20,441.67