Question

Suppose you are still committed to owning a $245,000 Ferrari (see Problem 9). If you believe your mutual fund can achieve an annual rate of return of 11.2 percent and you want to buy the car in 9 years (on the day you turn 30), how much must you invest today

Answer 1

Answer:

By investing $94237.34 today at 11.2% interest per year for nine years, I will have $245000 in nine years' time

Explanation:

The formula required here present value.which gives today's value of $245000 in nine years at interest rate of 11.2%,

PV=FV/(1+r)^n

FV=future value =$245000

r=rate=11.2%

n=number of years=9 years

PV=245000/(1+0.112)^9

PV=$94237.34