Use the table below to answer the following questions: Present Value of an Annui

Question

Use the table below to answer the following questions: Present Value of an Annuity of 1 Future Value of an Annuity of1 Period 4% 5% 8% 10% 4% 5% 8% 10% 2.7751 2.7232 2.5771 2.4869 3.12163.1525 3.2464 3.3100 3.6299 3.5460 3.3121 3.1699 4.24654.3101 4.5061 4.6410 4.4518 4.3295 3.9927 3.7908 5.41635.5256 5.8666 6.1051 5.2421 5.0757 4.6229 4.3553 6.6330 6.8019 7.3359 7.7156 6.0021 5.7864 5.2064 4.8684 7.8983 8.1420 8.9228 9.4872 6.7327 6.4632 5.7466 5.3349 9.21429.5491 10.6366 11.4359 7.4353 7.1078 6.2469 5.7590 10.5828 11.0266 12.4876 13.5795 8.1109 7.7217 6.7101 6.144612.0061 12.5779 14.4866 15.9374 4 6 8 10 Alicia gets a yearly alimony payment from her ex-husband and wants to save enough to put a 20% down payment on a home in 3 years. Median homes go for $650,000 and are expected to appreciate at the inflation rate of 3%. How much should Alicia put away into an investment each year if she can get a 8% return a year?

Explanation / Answer

Future value of home after 3 years = PV*(1+r)^n

650000*(1.03)^3 = 710272.6

value of home after 3 years = 710272.6

Amount of down payment after 3 years = 710272.6*20% = 142054.5

Yearly payment to obtain the value of down payment

annual payment = FV/PVAF at 8% for 3 years period

annual payment = 142054.5/3.2464 =43757.55

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