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Suppose you are committed to owning a $245,000 Ferrari. If you believe your mutual fund can achieve an annual rate of return of 11.2 percent and you want to buy the car in 9 years (on the day you turn 30), how much must you invest today?

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Answer:

The answer is $94,237.34

Explanation:

This question wants to find the amount of money that will be invested today to buy Ferrari at $245,000 in 9 years with an interest rate of 11.2%.

Future Value(FV) = $245,000

Interest rate (I/Y) =11.2%

Number of periods (N) = 9years

No payment coupon (PMT)

Using a Financial calculator now:

N= 9; I/Y11.2; PMT= 0; FV= $245,000; CPT PV = -94,237.34

Therefore, $94,237.34 must be invested today

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