You would like to buy a new automobile. You have $50,000 or so, but the car costs $68,500. If you can earn 9 percent, how much do you have to invest today to buy the car in two years? Do you have enough? Assume the price will stay the same. in of $68 500 to be paid in two years, assuming
You would like to buy a new automobile. You have $50,000 or so, but the car costs $68,500. If you can earn 9 percent, how much do you have to invest today to buy the car in two years? Do you have enough? Assume the price will stay the same. in of $68 500 to be paid in two years, assuming
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Hi,
When I did this problem I came out to $10,844.92 short of what I would need to be able to buy the automobile for $68,500.
My textbook is stating that it is short about $7,655, but that doesn't make sense to me because you still would need technically 10,844.92 to reach $68,500 to purchase automobile.
Why does the textbook say I'm only short $7,655, that's still not enough to be able to purchase $68,500.
Thank you.
Transcribed Image Text:= PV x 1.07²
= PV x 1.1449
Given this, we can solve for the present value:
Present value = $1,000/1.1449 = $873.44
Therefore, $873.44 is the amount you must invest to achieve your goal.
Saving Up
You would like to buy a new automobile. You have $50,000 or so, but the car costs $68,500.
If you can earn 9 percent, how much do you have to invest today to buy the car in two years?
Do you have enough? Assume the price will stay the same.
What we need to know is the present value of $68,500 to be paid in two years, assuming
a 9 percent rate. Based on our discussion, this is:
PV = $68,500/1.092 = $68,500/1.1881 = $57,655.08
You're still about $7,655 short, even if you're willing to wait two years.
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