You are considering the purchase of a property today for $315,000. You plan to finance it with an 80 percent loan. The appreciation rate on the property value is expected to be 4 percent annually for the next three years.

Required:

a. Approximate the expected annual average rate of appreciation on home equity for the next three years. As a percentage.

b. What if you now think that a $315,000 purchase price may be somewhat high and that if you pay this price, the expected appreciation rates in your house price will be as follows: year 1 = 0%, year 2 = 3%, and year 3 = 2%. Approximate the expected annual average rate of appreciation on home equity for the next three years. As a percentage.