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12 February, 07:27

Suppose you are committed to owning a $191,000 Ferrari. If you believe your mutual fund can achieve an annual rate of return of 11 percent and you want to buy the car in 8 years on the day you turn 30, how much must you invest today?

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  1. 12 February, 09:56
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    In this scenerio we have to use compound interest formula to find the investmen amount:

    FV=PV (1+i) ^{n}

    FV: Future Value (Ferrari price)

    PV: Present Value (Investment amount)

    i: interest rate (0.11) (11%)

    n: time (8 years)

    191,000=PV (1+0.11) ^{8}⇒ 191,000=PV*2,3045377697175681

    PV = $82,879.96=Investment amount
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