Upon Graduating From Argosy University With A Degree In Fina

Upon Graduating From Argosy University With A Degree In Finance John

Upon graduating from Argosy University with a degree in Finance, John Simple secured a position as a banking officer with Capital Two Bank in Dallas. Despite existing college loans, John and his partner Joan aimed to save enough funds over the next five years to purchase a home in Plano, Texas. They researched the current home price of approximately $178,000, which includes 2% closing costs, and calculated the necessary down payment to avoid Private Mortgage Insurance (PMI). They also considered associated costs such as moving, furniture, and inflation in home prices for their future financial planning.

Paper For Above instruction

Introduction

Financial planning for major life events such as homeownership necessitates careful calculation of future costs and savings. This paper examines John and Joan’s goal to purchase a home after five years, by estimating future home prices, required savings for the down payment, closing costs, and additional expenses. Using financial mathematics and Excel functions, this analysis demonstrates the amount they need to save monthly and the impact of alternative investment strategies that could improve their savings outcomes.

Estimated Purchase Price of the Home in Five Years

The current house price is estimated at $178,000, which includes 2% closing costs. The realtor also predicts an annual appreciation rate of 2.5%. To estimate the future price of the home after five years, we utilize the compound interest formula:

Future Price = Present Price × (1 + Appreciation Rate)^{Number of Years}

Substituting the values:

Future Price = $178,000 × (1 + 0.025)⁵ ≈ $178,000 × 1.1314 ≈ $201,337

Therefore, the estimated purchase price of the home in five years would be approximately $201,337.

Required Down Payment

To avoid PMI, John and Joan need a 20% down payment on the future home price:

Down Payment = 20% × $201,337 ≈ $40,267

They also expect to save an additional 10% to cover closing, moving, and furniture costs, which would be:

Additional Costs = 10% × $40,267 ≈ $4,027

Total amount needed for the down payment and additional costs at the time of purchase:

Total Savings Need = $40,267 + $4,027 ≈ $44,294

Current Savings and Additional Monthly Savings Required

John and Joan already have $10,000 saved, with half of it ($5,000) being a gift from Joan’s parents. Therefore, their current effective savings is $5,000. The remaining amount to reach their goal is:

Remaining Savings = $44,294 - $5,000 = $39,294

Assuming they plan to accumulate this amount over five years (60 months) with an average annual return of 5%, we utilize the future value of a series formula to determine their required monthly savings:

Using Excel or financial calculator functions, the monthly savings (PMT) can be calculated as:

=PMT(rate/12, nper, pv, fv, type)

where:

• rate = 5% annual return or 0.05
• nper = 60 months
• pv = -$5,000 (initial savings)
• fv = $39,294 (future value needed)
• type = 0 (end of period payments)

Applying the formula yields a monthly savings of approximately $588.16.

Impact of a Higher Investment Return

If John could improve his investment return by an additional 1.5% per annum, raising the rate from 5% to 6.5%, the monthly savings needed would decrease. Recalculating with the new rate, the required monthly savings would be approximately $535.47, showing the significant effect of higher returns on savings goal achievement.

Savings by Increasing the Investment Percentage

Suppose John considers increasing his initial investment percentage or the amount he contributes monthly. For example, increasing monthly savings from $588.16 to $700 would allow him to reach his goal faster or with a smaller required monthly contribution if the timeline remains unchanged. The difference of approximately $111.84 monthly illustrates the benefits of increased contributions, which accelerates wealth accumulation due to compound interest effects.

Conclusion

Effective financial planning requires precise calculations considering current savings, expected home price appreciation, and optimal investment strategies. By estimating future costs and savings, John and Joan can align their financial actions to reach their goal of homeownership in five years. Adjusting their investment returns or contribution levels can significantly influence the amount they need to save monthly, thus emphasizing the importance of strategic financial decisions grounded in sound mathematical analysis.

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