Suppose you are committed to owning a $230,000 Ferrari. If you believe your mutual fund can achieve an annual return of 10.95 percent, and you want to buy the car in 12 years on the day you turn 30, how much must you invest today

$66,101.45

Explanation:

To find the amount of money that you must invest today, you have to use the formula to calculate the present value:

PV=FV/(1+i)^n

PV= present value

FV= future value= 230,000

i= interest rate= 10.95%

n= number of periods of time= 12

PV=230,000/(1+0.1095)^12

PV=230,000/(1.1095)^12

PV=230,000/3.4795

PV=66,101.45

According to this, the answer is that you must invest today $66,101.45.

The amount to be invested today, present value = $66,099.80  Explanation:

The amount to be invested today is the present of an investment  of 12 years which would produce a future value of $230,000 where interest rate is 10.95%.

The formula below would be of help;

PV = FV× (1+r)^(-n)

PV - Present Value, FV- Future value, n- number of years

PV = ?, FV- 230,000 , r- 10.95%, n- 12

PV = 230,000 × (1.1095)^(-12)

PV =  66,099.80  

The amount to be invested today, present value = $66,099.80  

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