A retirement home in Florida costs $200,000 today. Housing prices in F

A retirement home in Florida costs $200,000 today. Housing prices in Florida are increasing at a rate of 4% per
year. Joe wants to buy the home in 8 years when he retires. Joe has $25,000 right now in a savings account
paying 8% interest per year.

Joe wants to make eight equal annual deposits into the savings account starting
today. How much must each deposit be so Joe will have enough money in his savings account to buy the
retirement home when he retires?

ANSWER

$19,798.86; The future value of the home in 8 years is $273,713.80 (PV = $200,000, I = 4%, N = 8, solve for FV); The
future value of the savings account in 8 years is $46,273.26 (PV = $25,000, I = 8%, N = 8, solve for FV); The difference of
$227,440.54 is the additional amount Joe needs in 8 years. Since Joe is making equal annual deposits starting today, the
$227,440.54 is the future value of an annuity due. The payment amount is $19,798.86 (FVA due = $227,440.54; N = 8, I =
8%, mode = BEG, solve for PMT).;