Use of Financial Calculator TI BA II Plus required. You are 27 years old and want to save for a holiday each year when you retire starting at age 65. A strip bond is an ideal investment that can be perfectly timed to suit this purpose. Considering that annual yields are now 7.81 percent and that a vacation is expected to cost around $15 000 per year, what would you have to invest today in a strip bond to pay for your first retirement vacation?

Question

Quizplus · Accepted Answer

To find the present value of $15,000 needed at age 65, we use the formula for present value of a single sum: PV = FV / (1 + r)^n. Here, FV = $15,000, r = 7.81% or 0.0781, and n = 65 - 27 = 38 years. Calculating this gives PV = $15,000 / (1 + 0.0781)^38 = $861.09.

Use of Financial Calculator TI BA II Plus Required