Think of something you want or need for which you currently do not have the fund

Question

Think of something you want or need for which you currently do not have the funds. It could be a vehicle, boat, horse, jewelry, property, vacation, college fund, retirement money, etc. Select something which costs somewhere between $2,000 and $50,000. Use the “Present Value Formula”, which computes how much money you need to start with now to achieve the desired monetary goal. Assume you will find an investment that promises somewhere between 5% and 10% interest on your money (you choose the rate) and pretend you want to purchase your desired item in 12 years. (Remember that the higher the return, usually the riskier the investment, so think carefully before deciding on the interest rate.) How much do you need to invest today to reach that desired amount 12 years from now?

Explanation / Answer

$5,963.74

So, we shall invest $5964 every year @6%p.a to get $50000 at the end of 12 years

Let the present value of the lifetime savings be 'x' Requirement after 12 years $50,000 Rate of return 6% Year Cash flow Present value factor@6% 1 to 12 x 8.384 Solving for x 8.384x=50000

$5,963.74

So, we shall invest $5964 every year @6%p.a to get $50000 at the end of 12 years

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