Exercise - Saving for a future value
Billy Dan and Betty Lou were recently married and want to start saving for their dream home. They expect the house they want will cost approximately $200,000. They hope to be able to purchase the house for cash in 10 years.
To determine the appropriate discount factor(s) using tables, click here to view Tables I, II, III, or IV in the appendix. Alternatively, if you calculate the discount factor(s) using a formula, round to six (6) decimal places before using the factor in the problem.
Required -
a. How much will Billy Dan and Betty Lou have to invest each year to purchase their dream home at the end of 10 years? Assume an interest rate of 9 percent.
b. Billy Dan's parents want to give the couple a substantial wedding gift for the purchase of their future home. How much must Billy Dan's parents give them now if they are to reach the desired amount of $200,000 in 12 years? Assume an interest rate of 9 percent.