Question

John wishes to purchase a super sportscar in 20 years when he retires. The car costs $500,000 at today's price and the expected long-term average yearly inflation is 4%. How much should John deposit at the beginning of each year (starting today) in order to have enough money to purchase the car in 20 years? Assume that John will earn an compound yearly return of 10% on his investments.

Answer 1

	This is two step problem
	Step : Computation of future value required ..
	Future value required =	$ 1,095,561.57
	500000*(1.04)^20
	Step 2
	we need to compute the yearly amount
	put in financial calculator -
	Set the calculator at BEGIN mode
	FV			$ 1,095,561.57
	I			10%
	N			20
	PV			0
	comute PMT		($17,389.18)
	ans =			$17,389.18