1. You are scheduled to receive $20,000 in two years. When you receive it, you will invest it for six more years at 8.4% per year. How much will you have in eight years? (Question #19 from page 143 of your text)
2. You expect to receive $10,000 in two years. You plan on investing it at 11% until you have $75,000. How long will you wait from now? (Question #20 from page 143)
3. You're trying to save to buy a new $170,000 Ferrari. If you believe that your mutual fund will achieve a 12% per year rate of return, and you want to buy the car for your birthday in 9 years, how much must you invest today? (Question #17 from page 142)
To solve these problems, we will need one formula.
FV = PV(1 + r)^n, where FV is the future value of an investment, PV is the present value of an investment. r is the annual interest rate, and n is the number of years of investing.
1. We know that we are scheduled to received 20,000 and you will invest that for 6 years (since the question asks how much you will have in 8 years). ...
present value and future value