a) John Fillmore’s lifelong dream is to own his own fishing boat to use in his r

Question

a) 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 $400,000. He estimates that the boat he wants will cost $300,000 when he retires in 5 years. How much of his inheritance must he invest at an annual rate of 8% (compounded annually) to buy the boat at retirement?

b) Refer to the data in BE6-7. Assuming quarterly compounding of amounts invested at 8%, how much of John Fillmore’s inheritance must be invested to have enough at retirement to buy the boat?

Explanation / Answer

a) Amount to e invested = 300,000/1.08^5

amount to be invested = 204,174.96

b) amount to be invested = 300,000/1.02^20

amount to be invested = 201,891.40

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