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Calculate what amount alan must earn at a minimum

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Reference no: EM133204905

Problem:

Alan is planning to retire in 15 years and buy a vineyard in the Hunter Valley Region in NSW. The vineyard and surrounding land he is currently looking at is priced $1,000,000 and is expected to grow in value each year at a 6% rate. 

  1. DMD Bank is offering Alan 8% interest p.a. compounded annually. Assuming Alan opens an account with DMD bank and deposits an annual amount, how much must he invest at the end of each of the next 15 years to be able to buy this property when he retires?
  2. If NRL bank offers him 7.5% interest but compounded quarterly, should Alan invest in NRL bank instead of DMD bank?
  3. Now, consider your answer to part a, the amount Alan must save each year. Calculate what amount Alan must earn at a minimum each year, if the savings equates to 30% of his pre-tax earnings. 

Please provide the complete solution of this problem.

Reference no: EM133204905

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