Question

Alan Fillmore’s lifelong dream is to own his own fishing boat to use in his retirement. Alan has recently come into an inheritance of $417,100. He estimates that the boat he wants will cost $320,000 when he retires in 6 years. Click here to view factor tables How much of his inheritance must he invest at an annual rate of 5% (compounded annually) to buy the boat at retirement?

Answer 1

Answer

Invested amount is $238,789

Explanation

Invested amount (Present value) is computed using the equation given below:

Invested amount = Boat cost / (1 + r) ⁿ

= $320,000 / (1 + 5%) ⁶

= $320,000 / 1.34

= $238,789 (Approx.)