The Time Value of Money—Preparing for Home Ownership

Assignment 2: The Time Value of Money—Preparing for Home Ownership
Upon graduating from Argosy University with a degree in Finance, John  Simple found a great job as a banking officer with Capital Two Bank in  Dallas. Although he and his partner Joan had several college loans that  required payments, their goal was to set aside funds for the next five  years so that they could get out of the small apartment in Irving,  Texas. After reviewing the listings in the areas surrounding DFW and  speaking to their bosses about possible transfers, John and Joan decided  upon Plano as their desired future location for a home.
Based on house prices they received from a local realtor, they  determined that the home they needed currently costs around $178,000  which includes 2% closing costs. To avoid paying Private Mortgage  Insurance, John and Joan need to make a down payment of 20%. Since they  are saving for the potential purchase, it will be five years before they  buy the home. This gives them time to save for the down payment,  moving, and furniture costs, which they estimate will be 10% more than  the required down payment. They also expect home prices in Plano to  continue to increase each year at 2.5% per annum rate as presented by  their realtor.
John, being the finance graduate, wanted to adequately prepare for  their future purchase and told Joan that he would take all this  information and present an overview of how much would be required once  their estimated purchase date became a reality. In addition, John would  show how much money they needed to save each month in their house  investment account at E-Trade, which averages 5% annual return.
Tasks:
Write a 2–3-page paper where you answer the questions above. Make  sure you identify the question and then respond showing all calculations  using math or Excel functions.

What is the estimated purchase price of the home in 5 years?
How much would need to be saved for the down payment?
How much would need to be saved for closing, moving, and furniture costs?
Considering that they have $10,000 already saved (half of which was  provided by Joan’s parents as a wedding gift), how much money do they  need to save each month to reach their goal?
Suppose John could change investment plans at E-Trade and earn an  additional 1.5% per annum without additional risk, how much money do  they need to save each month to reach their goal? How much in investment  dollars would they save by increasing their investment percentage?

Submission Details:
If you use Microsoft Excel, please attach a copy of your worksheet so  your instructor can review the work. In addition, explain the theory  used in solving this case using no less than 2 outside references. Apply  APA standards to citation of sources.

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By the due date assigned, save your report as M2_A2_lastname_firstinitial.doc and upload it to the Submissions Area. For example, if your name is John Smith, your document will be named SmithJ_M2_A2.doc.

Assignment 2 Grading Criteria   Maximum Points    Effectively  analyzed and then reported the findings relative to the case and all 5  case questions. Submitted the 2–3-page paper and included an Excel  worksheet with appropriate calculations.  44    Appropriate financial theory was explained and included at least 2 outside references.  24    Articulated key points in a clear, logical, and professional manner, with supporting evidence wherever required.  12    Wrote  in a clear, concise, and organized manner; demonstrated ethical  scholarship in accurate representation and attribution of sources;  displayed accurate spelling, grammar, and punctuation.  20    Total:  100

 
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