You are considering the purchase of a property today for $500,000. You plan to finance it with a 90 percent loan. The appreciation rate on the property value is expected to be 3 percent annually for the next three years.

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

b.What if you think that a $500,000 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 = 1%, and year 3 = 2%. How will your answer to part (a) change?