You want to buy a Nissan 300Z on your 27th birthday.You have priced these cars and found that they currently sell for $25,000.You believe that the price will increase by 10 percent per year until you are ready to buy.You can presently invest to earn 14 percent.If you just turned 20 years old,how much must you invest at the end of each of the next 7 years to be able to purchase the Nissan in 7 years?

Question

Quizplus · Accepted Answer

Step 1 - Calculate the future value of the car.
FV = PV × 11ea7fdb_fc16_cfb4_a768_63136d59b71e_TB2902_11 FV = 25,000 × (1.10 11ea7fdb_fc16_cfb5_a768_3ddd3a6982b7_TB2902_11 = $48,717.93
Step 2 - Use the future value of the car to calculate the amount that needs to be invested.
FV = PMT × 11ea7fdb_fc16_cfb6_a768_97e913a6b232_TB2902_11 PMT = FV / 11ea7fdb_fc16_cfb7_a768_b76443bee87f_TB2902_11 PMT = 48,717.93 / 11ea7fdb_fc16_cfb8_a768_97987e689dbd_TB2902_11 = $4,540.14
Using a financial calculator:
N = 7, I/Y = 14, PV = 0, FV = -48,717.93, cpt PMT = $4,540.14

You Want to Buy a Nissan 300Z on Your 27th