Problem
A piece of lakefront real estate is currently valued at $100,000. You don't have the money to purchase the real estate now but the owner has committed to sell it to you in 5 years for the $100,000 PLUS 6% appreciation in price each year.
I. How much are you going to have to pay for the property in 5 years time if you agree to pay the owner her $100,000 PLUS the 6% appreciation per year?
II. Let's say you currently have $60,000 in savings and you hope to be able to contribute $10,000 annually to your purchase funds. What type of return are you going to have to achieve over the 5 year period in order to reach your required amount calculated in Part I?