To buy his favorite car, Larry is planning to accumulate money by investing his Christmas bonuses for the next five years in a security which pays a 10 percent annual rate of return. The car will cost $20,000 at the end of the fifth year and Larry's Christmas bonus is $3,000 a year. Will Larry accumulate enough money to buy the car?
What will be an ideal response?
Using financial calculator: PV = 0, N = 5, PMT = 3000, I = 10, CPT FV = $18,315
Larry will not have enough money to buy the car. He should either invest more money or deposit his christmas bonuses in a security paying a higher rate of return.
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