Q 4

EQU CASE STUDY After graduating from the University with a degree in Finance, John Smith took a position as a stock broker with J.P. Morgan in New York. Although he had several college loans to make payments on, his goal was to set aside funds for the next nine years in order to make a down payment on a house. After considering the various areas of New York, John chose Kensington, Suburb of New York City as his desired future residency. Based on median house price data, he learned that a two-bedroom, two-bath house currently costs $92,000 John wants to make a down payment of 25 per cent. Because it will be nine years before John buys a house, the $92, 000 price will surely not be the same in the future. To estimate the rate at which the median house price will increase, he considered the historical price appreciation in Kensington. In the past, homes appreciated by nearly three per cent per annum John was satisfied with this estimation. J.P.Morgan provides several opportunities for John to invest the funds that will be devoted to the purchase of his future home. Questions: 1- What will be the future median home selling price in Kensington in nine years? 2- What amount will John Smith have to accumulate as a down payment if he does decide to buy a house in Kensington? 3- If homes in Kensington appreciate by six per cent per annum over the next nine instead of the assumed three per cent, what will be the future median home selling price in Kensington in nine years? 4-Based on your answer from Question 3, what amount will John Smith have to accumulate as a down payment if he does decide to buy a house in Kensington