A Ski Chalet in Vail Now Costs $250,000 to Rent

question 49

Multiple Choice

A ski chalet in Vail now costs $250,000 to rent for a week during February. Inflation is expected to cause this price to increase at 5 percent per year over the next 10 years before Howard and his wife retire from successful investment banking careers. How large an equal annual end-of-year deposit must be made into an account paying an annual rate of interest of 13 percent in order to buy the ski chalet upon retirement?

• A) $8,333
• B) $13,572
• C) $25,005
• D) $22,109

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Definitions:

Disposable Income

Financial allotment for households' saving and spending requirements after income tax subtractions.

MPC

Marginal Propensity to Consume refers to the fraction of any additional income that is used for consumption purposes.

Consumption

The act of households utilizing goods and services.

Disposable Income

The sum of funds that families can allocate to expenditure and savings once they've paid their income taxes.