Question

12. Ronnie Cox just inherited $27,000. How much of this money should he set aside today to have $17,000 to pay cash for a Ventura Van, which he plans to purchase in 1 year? He can invest at 1.7% annually, compounded annually.

Answer 1

Amount to be kept separately for having $17,000 at year end = $16,715.83

Explanation:

As it is provided, that annual return = 1.7% compounded annually.

We need to calculate the amount to be invested today, to get a total of $17,000 at year end.

Since the interest is compounded annually, it is a simple interest if the term is of 1 year.

Therefore,

Investment + Investment
`*` 1.7% = $17,000

Investment + 0.017 Investment = $17,000

1.017 Investment = $17,000

Investment =
`(17,000)/(1.017) = 16,715.83`

Therefore, Investment today = $16,715.83