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.)

Question

Carlos Dominguez

Business

12 January, 19:39

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.)

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Answers (1)

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Catalina Dodson · Answer 1

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

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.