Question

Suppose you are still committed to owning a $175,000 Ferrari. Required:If you believe your mutual fund can achieve a 11.2 percent annual rate of return, and you want to buy the car in 10 years on the day you turn 30, how much must you invest today? (Do not include the dollar sign ($). Enter rounded answer as directed, but do not use the rounded numbers in intermediate calculations. Round your answer to 2 decimal places.)

Answer 1

Answer:

The correct answer is 60,532.72.

Explanation:

According to the scenario, the given data are as follows:

Future value (FV) = $175,000

Rate of interest (R)= 11.2%

Time (T) = 10 years

So, we can calculate the present value by using the following formula:

Present Value (PV) = FV / (1 + r) ^t

= 175,000 / (1 + 11.2%)^10

= 60,532.72.

Hence, the present value that should be invested today is 60.532.72.