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# Assignment 2: The Time Value Of Money—Preparing For Home Ownership

##### Question

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.

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.

1. What is the estimated purchase price of the home in 5 years?
2. How much would need to be saved for the down payment?
3. How much would need to be saved for closing, moving, and furniture costs?
4. 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?
5. 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.

• By Wednesday, June 21, 2017, save your report as M2_A2_lastname_firstinitial.doc and upload it to the M2 Assignment 2 Dropbox. For example, if your name is John Smith, your document will be named SmithJ_M2_A2.doc.
##### Solution

Title: Assignment 2: The Time Value Of Money—Preparing For Home Ownership
Length: 8 pages (1750 Words)
Style: APA

Preview

Assignment 2: The Time Value of Money—Preparing for Home Ownership

Purchasing a home is one of the biggest financial decisions in life. “Cash flows are an important element in the investing decision process; therefore, it is important to understand the value of the cash inflows and outflows. The value of money is influenced by many factors, such as inflation, present consumption to future consumption, and any uncertainty associated with the cash flow.” (Grossman, 2009)John, being the finance graduate, wants to adequately prepare for their purchase and present an overview of how much would be required to make their dreams become a reality. Listed below are John’s findings.

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