Answer to Question #305738 in Financial Math for Shahriar

Question

Suppose Arya is an entrepreneur. She is planning to set aside funds for the next eight years in order

to make a down payment on her own house. After considering the various apartments of Dhaka,

Arya chose Dhanmondi as her desired future residency. Based on going price, she learned that a

two-bedroom, two-bath house currently costs $88,000. She wanted to make a down payment of

20%. Because it will be eight years after she buys a house, the $88,000 price will surely not be the

same in the future. To estimate the rate at which the median house price will increase, she

considered the historical price appreciation in Dhanmondi. In the past, homes appreciated

by nearly 4% per annum. Arya was satisfied with this estimation. IDLC provides several

opportunities for Arya to invest the funds that will be devoted to the purchase of her future home.

She feels that a balanced account containing stocks, bonds, and government securities would

realistically achieve an annual rate of return of 8%.