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29 January, 07:54

Suppose you are committed to owning a $245,000 Ferrari. If you believe your mutual fund can achieve an annual rate of return of 11.2 percent and you want to buy the car in 9 years (on the day you turn 30), how much must you invest today?

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  1. 29 January, 08:00
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    The answer is $94,237.34

    Explanation:

    This question wants to find the amount of money that will be invested today to buy Ferrari at $245,000 in 9 years with an interest rate of 11.2%.

    Future Value (FV) = $245,000

    Interest rate (I/Y) = 11.2%

    Number of periods (N) = 9years

    No payment coupon (PMT)

    Using a Financial calculator now:

    N = 9; I/Y11.2; PMT = 0; FV = $245,000; CPT PV = - 94,237.34

    Therefore, $94,237.34 must be invested today
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