You want to go on a boat cruise on your 27th birthday.You have priced these cruises and found that they currently cost R30,000.You believe that the price will increase by 5 percent per year until you are ready to go on it.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 go on the boat cruise in 7 years?

Question

Quizplus · Accepted Answer

The future value of the boat cruise after 7 years can be calculated as follows:
FV = R30,000 * (1.05)^7
FV = R41,399.38
The amount that needs to be invested per year can be calculated using the annuity formula as follows:
Payment = (FV * r) / ((1 + r)^n - 1)
Where r is the annual interest rate and n is the number of years.
Payment = (R41,399.38 * 0.14) / ((1 + 0.14)^7 - 1)
Payment = R3,933.93 (rounded to the nearest cent)
Therefore, the answer is B.

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