Question

Can you please type out the answer? Assume that Sally would like to purchase a vehicle...

Can you please type out the answer?

Assume that Sally would like to purchase a vehicle in 8 years with a cost of $50,000. She believes that she can achieve a 14% annual rate of return on her investment. How much should she invest today rounded to the nearest dollar? Please show your work using the present value table to solve the problem

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Answer #1

Amount needed after 8 years (Future Value) = $50,000

Rate of return (r) = 14%

Period = 8 years

We need amount that needed to be invested today i.e. Present Value.

Present Value = Future Value * Present Value Factor(14%,8 Years)

Present Value factor can be found by looking at the combination of 14% and 8 years in the Present Value table.

Alternatively, it can be calculated as follows = 1/(1.14)^8

Either way, the value will be Present Value Factor(14%,8 Years) is 0.351

Present Value = $50,000 * 0.351

Present Value = $17,528 (rounded off to the nearest dollar.

Hence, she must invest $17,528 today.

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