17. 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?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?
PV * (1 + .1025)^10 = $150,000 PV * (1.1025)^10 = $150,000 PV * (2.65239)= $150,000 PV = $150,000/2.65239 PV = $56,533.42
We have been provided with the future value and we have to find out the prasent value of the investment need to be made
Information provided in the sume is as follow
Future value = $150,000
annual rate of return=10.25 percent
you want to buy the car in 10 years so investment need to be made for 10 year
we put av=bove figure in the formulla as follow
PV * (1 + .1025)10 = $150,000
PV * (1.1025)10 = $150,000
PV * (2.652397705)= $150,000
PV = $150,000/2.652397705
PV = $56,533.42
