You want to buy a Nissan 350Z on your 27th birthday.You have priced these cars and found that they currently sell for $30,000.You believe that the price will increase by 5 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

The price of the Nissan 350Z in 7 years will be:
$30,000*(1.05)^7 = $41,544.38

To calculate the required annual investment, we can use the present value of a future lump sum formula:

PV = FV / (1+r)^n

where PV is the present value, FV is the future value, r is the interest rate, and n is the number of periods.

In this case, we want to find the annual investment required to reach a future value of $41,544.38 in 7 years, with an interest rate of 14%. We can solve for the required annual investment as follows:

PV = $41,544.38 / (1+0.14)^7 = $18,564.99
Annual investment = PV / ((1+r)^n - 1) = $3,933.93

Therefore, the best choice is B, as it is the closest to the calculated amount.

You Want to Buy a Nissan 350Z on Your 27th