Question

A person wants to buy a house after seven years by making semiannual deposits of $ 40,000 in a bank account that pays 10%.

1) Compute the price of the house.

2) Three years later, directly after making the sixth payment, the person passed away. His son decided to buy the house on the same day that his father wanted to buy it. However, he noticed that his father’s payments did not take into consideration the inflation rate of 5% that started three years ago and is expected to continue at the same rate for a long time. The son decided to make annual deposits at the start of each year, starting year four.

Compute the amount of the annual payments that the son has to make in order to be able to buy the house taking into consideration the inflation rate

Answer 1

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