Question

Suppose you are committed to owning a $215,000 ferrari. if you believe your mutual fund can achieve an annual return of 10.8 percent, and you want to buy the car in 9 years on the day you turn 30, how much must you invest today? (do not round intermediate calculations and round your answer to 2 decimal places,

e.g., 32.16.)

Answer 1

Given, Future value (FV) = 215,000

Interest rate = r = 10.8% = 0.108

Number of years = n =9

Present value = FV/(1+r)^n

Present value = 215000/(1+0.108)^9

Present value = 215000/1.108^9

Present value = 85,424.14

The amount that you must invest today = $85,424.14