Question

Gary Kiraly wants to buy a new Italian sports car in three years. The vehicle is expected to cost $80,000 at that time. If Gary should be so lucky as to find an investment yielding 12% over that three-year period, how much would he have to invest now in order to accumulate $80,000 at the end of the three years?

Answer 1

$56,942

Step-by-step explanation:

We can the initial investment by using the discounting formula which is as under:

Present Value=Future Value * (1+r)^n

Here

N is number of year and = 3 Years

r= Interest rate = 0.12

Future Value = $80,000

By putting values, we have:

Present Value = $80,000 * (1+12%)^3

Present Value = $56,942

So this is the amount the company must invest today to aggregate it to $80,000 at the end of the three years.