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29 August, 15:11

Suppose you are committed to owning a $191,000 Ferrari. If you believe your mutual fund can achieve a 11 percent annual rate of return and you want to buy the car in 8 years on the day you turn 30, how much must you invest today? (Do not round intermediate calculations and round your final answer to 2 decimal places, e. g., 32.16.)

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  1. 29 August, 15:21
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    The amount to be invested today at 11% rate of return to yield $191,000 in eight years is $ 82,879.96

    Explanation:

    The amount to be invested today is the present value of the future amount needed for the car purchase i. e $191,000.

    The present value formula is given below:

    PV=FV * (1+r) ^-n

    FV is the future amount of $191,000

    r is the rate of interest on the investment at 11%

    n is the number of years the investment would last which is 8 years.

    PV=$191,000 * (1+11%) ^-8

    PV=$191,000 * (1.11) ^-8

    PV=$191000*0.433926496

    PV=$ 82,879.96
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