Question

utual fund can achieve a 10.25 percent annual rate of return, and you want to buy the car in 10 years on the day you turn 30, how much must you invest today?9. Calculating Present Values. Suppose you are still committed to owning a $150,000 Ferrari (see Question 9). If you believe your mutual fund can achieve a 10.25 percent annual rate of return, and you want to buy the car in 10 years on the day you turn 30, how much must you invest today?a. PV * (1 + .1025)^10 = $150,000b. PV * (1.1025)^10 = $150,000c. PV * (2.65239)= $150,000d. PV = $150,000/2.65239e. PV = $56,533.42

Answer 1

Answer:

All the options written are the steps involved in solving the problem. The formula that would be used is compounding formula because we have future value which is $150,000 and rate of return which is 10.25%. Furthermore, here n is 10 years time.

The formula is:

Future Value = Present Value * (1 + r)^n

$150,000 = Present Value * (1.1025)^10

$150,000 = Present Value * 2.6524

$150,000 / 2.6524 = Present Value

Present Value = $56553

So the amount that we should deposit in mutual funds today to buy Ferrari is $56553. The difference is due to rounding off.