Question

Kenneth Clark is saving for an Australian vacation in three years. He estimates that he will need $4,970 to cover his airfare and all other expenses for a week-long holiday in Australia. If he can invest his money in an S&P 500 equity index fund that is expected to earn an average annual return of 11.4 percent over the next three years.

Required:
How much will he have to save every year if he starts saving at the end of this year?

Answer 1

$1481.37

Step-by-step explanation:

Annual savings = future value / annuity factor

Annuity factor = {[(1+r)^n] - 1} / r

[(1.114)^3 - 1 ] / 0.114 = 3.3549996

$4,970 / 3.3549996 = $1481.37