Question Completion Status Question 4 of 5511 12 points You

Question Completion Status: ??Question 4 of 5511 1.2 points You plan to retire in Phoenix in 20 years Cu ently, the t ical house that pleases you costs S200000, but the value will increase by 4% a over the next 20 years. In order to buy the house upon retirement, what must you save each year in equal annual end-of-year deposits if they can earn 10% annually? O a. 7650.94 ?b. 14715.52 Oc 10000 Od. 10056.7 O e. 21910 Moeng to another question will save this response Question 4 ofs S MacBook Air

Solution

Here, n=20 , r=4% and p=200000

hence fututre value of house is p*(1+r)^n

FV = 200000*(1+0.04)^20

FV = 438224.6

To have this amount at the 20th year where the savings yields 10%,

The monthly saving should be FV/FVIF

yearly savings = FV/ [(1+r)^n - 1 / r]

yearly savings= 438224.6/[(1+0.10)^20-1/0.10

yearly savings= 438224.6/[5.727/0.10)

Hence, yearly savings = 7,651.24

Hence option one will be correct.