The price of a car you want is $42,000 today. Its price is expected to increase by $1000 each year. You now have $25,000 in an investment account, which is earning 10% per year. How many years will it be before you have enough to buy the car without borrowing any money? Solve by (a) trial and error, and (b) by spreadsheet.
What will be an ideal response?
42,000 + 1000np = 25,000(F/P,10%,np)
(a) By trial and error:
Try n = 7: 49,000 > 48,718
Try n = 8: 50,000 < 53,590
By linear interpolation, np = 7.08 years
(b) By spreadsheet: Use Goal Seek to force the difference to be zero by changing cell B3.
Payback displayed is np = 7.08 years. Must wait 8 years to buy the car.
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