Jim and Nancy just got married today. They want to start saving so they can buy a house five years from today. The average house in their town today sells for $150,000. Housing prices are expected to increase 4.5 percent a year. When they buy their house five years from now, Jim and Nancy expect to get a 30-year (360-month) mortgage with a 7 percent nominal interest rate. They want the monthly payment on their mortgage to be $700 a month. Jim and Nancy want to buy an average house in their town. They are starting to save today for a down payment on the house. The down payment plus the mortgage will equal the expected price of the house. Their plan is to deposit $2,500 in a brokerage account today and then deposit a fixed amount at the end of each of the next five years. Assuming that the brokerage account has an annual return of 8 percent, how much do Jim and Nancy need to deposit at the end of each year in order to accomplish their goal?
Question 4
Jim and Nancy just got married today. They want to start saving so they can buy a house five years from today. The average house in their town today sells for $150,000. Housing prices are expected to increase 4.5 percent a year. When they buy their house five years from now, Jim and Nancy expect to get a 30-year (360-month) mortgage with a 7 percent nominal interest rate. They want the monthly payment on their mortgage to be $700 a month.
Jim and Nancy want to buy an average house in their town. They are starting to save today for a down payment on the house. The down payment plus the mortgage will equal the expected price of the house. Their plan is to deposit $2,500 in a brokerage account today and then deposit a fixed amount at the end of each of the next five years.
Assuming that the brokerage account has an annual return of 8 percent, how much do Jim and Nancy need to deposit at the end of each year in order to accomplish their goal?
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