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20 May, 23:33

Suppose you are still committed to owning a $245,000 Ferrari (see Problem 9). 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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  1. 21 May, 02:46
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    By investing $94237.34 today at 11.2% interest per year for nine years, I will have $245000 in nine years' time

    Explanation:

    The formula required here present value. which gives today's value of $245000 in nine years at interest rate of 11.2%,

    PV=FV / (1+r) ^n

    FV=future value = $245000

    r=rate=11.2%

    n=number of years=9 years

    PV=245000 / (1+0.112) ^9

    PV=$94237.34
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