Question

# Life Planning Using TVM: Please show how you obtained the answer, so I can have a...

Life Planning Using TVM: Please show how you obtained the answer, so I can have a better understanding. 1. You want to buy a \$250,000 house 5 years from now. If you have no money to begin with, how much do you need to save at the end of each year to have 20% of the\$250,000 purchase price? You plan to invest your savings with your broker who will allocate it into various asset classes. You hope to earn 8% on your money for the next 5 years. How much do you need to save at the end of each year? How does this change if you can only earn 6% return.

Using 8% return on savings the years payment (PMT): \$8,522.82

 Using financial calculator BA II Plus - Input details: # FV = Future Value = -2500000*20% = -\$50,000.00 PV = Present Value = \$0.00 I/Y = Rate / Frequency = 8.000000 N = Total number of periods = Number of years x frequency = 5 CPT > PMT = Payment = Saving per year = \$8,522.82

Using 6% return on savings the years payment (PMT): \$8,869.82

 Using financial calculator BA II Plus - Input details: # FV = Future Value = -2500000*20% = -\$50,000.00 PV = Present Value = \$0.00 I/Y = Rate / Frequency = 6.000000 N = Total number of periods = Number of years x frequency = 5 CPT > PMT = Payment = Saving per year \$8,869.82

At 6% we have to save more.

#### Earn Coins

Coins can be redeemed for fabulous gifts.