Question

Suppose you are committed to owning a $196,000 Ferrari. If you believe your mutual fund can achieve an annual rate of return of 12 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

You must deposit $70,679.57 to achieve your goal.

Step-by-step explanation:

Giving the following information:

Final value= $196,000

Interest rate= 12%

Number of years= 9

To calculate the present value that must be invested, we need to use the following formula:

PV= FV/(1+i)^n

PV= 196,000/ (1.12^9)= $70,679.57

You must deposit $70,679.57 to achieve your goal.