Brief Exercise 6-7 John Fillmore’s lifelong dream is to own his own fishing boat

Question

Brief Exercise 6-7 John Fillmore’s lifelong dream is to own his own fishing boat to use in his retirement. John has recently come into an inheritance of $428,000. He estimates that the boat he wants will cost $318,100 when he retires in 7 years. (Use the tables below.) How much of his inheritance must he invest at an annual rate of 11% (compounded annually) to buy the boat at retirement? (Round factor values to 5 decimal places, e.g. 1.25124 and final answers to 0 decimal places, e.g. 458,581.) Investment amount $ Click if you would like to Show Work for this question: Open Show Work

Explanation / Answer

Calculation of Present value to be invested:

Present value    = Future value / (1+r)^n

Future value = Cost of boat after 7 years = $318,000

r= rate of return = 11% Annually = 0.11

n= number of year from now = 7

hence ,

Present value    = 318000 / (1+0.11)^7

Present value    = 318000 / 2.07616

Present value    = $ 153,167.39

Hence John Fillmore should invest $ 153,167.39 of his inheritance today.

Related Questions

Navigate

• Browse (All)
• Browse B
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.