Question

Suppose you are committed to owning a $191,000 Ferrari. If you believe your mutual fund can achieve an annual rate of return of 11 percent and you want to buy the car in 8 years on the day you turn 30, how much must you invest today?

Answer 1

Step-by-step explanation:

In this scenerio we have to use compound interest formula to find the investmen amount:

FV=PV(1+i)^{n}

FV: Future Value (Ferrari price)

PV: Present Value (Investment amount)

i: interest rate (0.11) (11%)

n: time (8 years)

191,000=PV(1+0.11)^{8}⇒ 191,000=PV×2,3045377697175681

PV= $82,879.96=Investment amount