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Question 1 John is a 20-yesrs old young man who is working hard to buy his first house when he is 45. His potential dream
Question 1
- John is a 20-yesrs old young man who is working hard to buy his first house when he is 45. His potential dream house is around $200,000 now but inflation will increase its price. He is willing to invest a fixed amount at the end of each year for the next 25 years for his dream. Assume he can earn 9% annually after taxes on his investments.
Required:
- Expected inflation is to be around 5% per year for the next 25 years. What will the house cost when John is 45? (2 marks)
- How much should John invest at the end of each of the next 25 years to have enough cash to purchase the house when reaches to 45? (4 marks)
- If John invests at the beginning instead of at the end of each of the next 25 years, how much should he invest each year? (4 marks)
- Lucy borrowed $18,000 business loan from her bank that is to be repaid in three equal, annual, end-of-year payments. The interest rate on the loan is 10%.
Required:
- What is Lucys annual loan payment? (3 marks)
- Construct an amortization schedule for the loan. (12 marks)
[Total: 25 Marks]
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