Question

Suppose you are committed to owning a $185,000 ferrari. if you believe your mutual fund can achieve an annual return of 10.5 percent, and you want to buy the car in 10 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.) amount to be invested

Answer 1

Answer:  I must invest $68,163.04 today to buy a Ferrari 10 years from now.

We can interpret the data in the question as follows.

We need $185000 after 10 years, so this is the Future Value of an investment made today. We have to calculate the amount to be invested.

We need to use the Present Value formula in order to find the amount to be invested.

The formula is :

$\mathbf{PV = \frac{FV}{(1+r)^{n}}}$

Substituting the values we get,

$\mathbf{PV = \frac{185000}{(1+0.105)^{10}}}$

$\mathbf{PV = \frac{185000}{2.714080847}}$

$\mathbf{PV = 68163.03952}$