Question

John's lifelong dream is to own his own fishing boat to use in his retirement. John has recently come into an inheritance of $500,000. He estimates that the boat he wants will cost $400,000 when he retires in 5 years. How much of his inheritance must he invest at an annual rate of 10% (compounded annually) to buy the boat at retirement?

Answer 1

PV= $248,368.53

Step-by-step explanation:

Giving the following information:

Future Value (FV)= $400,000

Number of periods (n)= 5

Interest rate (i)= 10% = 0.1

To calculate the present value (PV), we need to use the following formula:

FV= PV*(1í)^n

Isolating PV:

PV= FV/(1+i)^n

PV= 400,000 / (1.1^5)

PV= $248,368.53