Jimmy identified his ‘dream’ retirement home at the end of 2010. The property is currently (end 2010) valued at $850,000 and is likely to appreciate in value over the next 15 years (his anticipated retirement date from now) as follows:
-Years 1 to 5 by 8% p.a.,
-Years 6 to 10 by 10% p.a.,
and -Years 11 to 15 by 15% p.a.
he can earn a net 14% p.a. rate of return on any investment funds he puts aside to pay for his ‘dream’ retirement home over the 15 year term. Moreover, as a result of an inheritance from his grandfather, he also anticipates that he will be able to add a lump sum of $300,000 to these investment funds (used to pay for his retirement home) in 3 years from now.
a) Given the information provided above, approximately what amount must Jack invest on an annual basis in order to be able to buy his dream home at retirement?
i) At the end of each of the next 15 years?
ii) At the beginning of each of the next 15 years?