Suzy Wants to Buy a House but Does Not Want

question 101

Essay

Suzy wants to buy a house but does not want to get a loan. The average price of her dream house is $500,000 and its price is growing at 5 percent per year. How much should Suzy invest in a project at the end of each year for the next 5 years in order to accumulate enough money to buy her dream house with cash at the end of the fifth year? Assume the project pays 12 percent rate of return.

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Definitions:

Financial Executives

Individuals who manage financial planning, decision making, and control in an organization.

Accounting Values

The monetary amounts associated with assets, liabilities, equity, income, and expenses recorded in a company's financial statements.

Financial Values

Refers to the monetary, material, or assessed worth of an asset, investment, or company.

Payback

The period of time needed for an investment to generate cash flow sufficient to recover the initial expense incurred.