Question

Suppose you are committed to owning a $191,000 Ferrari. If you believe your mutual fund can achieve a 11 percent annual rate of return and you want to buy the car in 8 years on the day you turn 30, how much must you invest today? (Do not round intermediate calculations and round your final answer to 2 decimal places, e.g., 32.16.)

Answer 1

Answer:

The amount to be invested today at 11% rate of return to yield $191,000 in eight years is $ 82,879.96  

Explanation:

The amount to be invested today is the present value of the future amount needed for the car purchase i.e $191,000.

The present value formula is given below:

PV=FV*(1+r)^-n

FV is the future amount of $191,000

r is the rate of interest on the investment at 11%

n is the number of years the investment would last which  is 8 years.

PV=$191,000*(1+11%)^-8

PV=$191,000*(1.11)^-8

PV=$191000*0.433926496

PV=$ 82,879.96