5. After graduating from Mindanao State University with a degree in Finance, Alma Reyes took a position as a stock broker with SM Realties in Manila .Although she had several college loans to make payments on, her goal was to set aside funds for the next eight years in order to make a down payment on a house. After considering the various suburbs of Manila, Alma chose Rockwell as her desired future residency. Based on median house price data, she learned that a three-bedroom, two-bath house currently costs P7,000,000. To avoid paying Private Mortgage Insurance (PMI), Alma wanted to make a down payment of 20%. Because, it will be eight years before Alma buys a house, the P7,000,000 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 Rockwell. In the past, homes appreciated by nearly 4% per annum. Alma was satisfied with this estimation. SM Realties provides several opportunities for Alma 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%.
Questions
1. Taking into consideration the fact that the P7,000,000,000 home price will grow at 4% per year, what will be the future median home selling price in Rockwell in eight years? What amount will Alma Reyes have to accumulate as a down payment if she does decide to buy a house in Rockwell?
2. Based on your answer from number 1, how much will have to be deposited into the SM Realties account (which earns 8% per year) at the end of each month to accumulate the required down payment?