Question

Both you and your older brother would like to have $23,000 in 15 in years. Because of your success in this class, you feel that you are a more savvy investor than your brother and will be able to earn an annual return of 11 percent compared to your brother's 9.7 percent. How much less than your brother will you have to deposit today?

Answer 1

Answer:

$929.15

Explanation:

In this question,we compare the present value and the difference should be reported in the answer

As we know that

Future value = Present value × (1 + interest rate)^number of years

In the first case

$23,000 = Present value × (1 + 0.11)^15

So, the present value would be

= $23,000 ÷ 1.11^15

= $23,000 ÷ 4.7845894883

= $4,807.099

In the second case

$23,000 = Present value × (1 + 0.097)^15

So, the present value would be

= $23,000 ÷ 1.097^15

= $23,000 ÷ 4.0095848986

= $5,736.25

So, the difference is

= $5,736.25 - $4,807.099

= $929.15