Question

(5 points) To buy a new boat, Larry is planning to accumulate money by investing his Christmas bonuses for the next five years in a security which pays a 10 percent annual rate of return. The boat will cost $25,000 at the end of the fifth year and Larry's Christmas bonus is $4,000 a year. Will Larry accumulate enough money to buy the boat

Answer 1

Answer:

No, Larry will not accumulate enough money

Explanation:

To determine whether or not Larry will be able to accumulate enough money to buy the boat, we need to work out the future value of he investment

Future value of an investment is the amount an investment will worth at a future date if interest is earned at a specific rate compounded.

So we work out the future value of Larry's investment:

FV  = PV × ( (1+r)^n -1)/r

     = 4000 ×  ( (1.1)^5  - 1)/0.1 )

     = $ 24,420.40

At the end of the fifth year he would have only accumulated $24,420.40

which is less than the cost of the boat.

No, Larry will not accumulate enough money