question archive You just received a nice bonus of 15 000 €
You just received a nice bonus of 15 000 €
Subject:FinancePrice:2.86 Bought3
You just received a nice bonus of 15 000 €. You want to save it in order to buy this awesome vintage electric guitar (a 1954 - Gibson - Les Paul Standard) which costs about 30 000 €. You have access to a risk-free investment giving an annual return of 12% (yes you are a very gifted portfolio manager!). How long will it be before you have enough money for the guitar of your dream? A little bit less than 2 years. A little bit less than 5 years. A little bit more than 6 years. A little bit more than 9 years.
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Answer ) A bit more than 6 years
Here formula of future value can be use
Future value = present value(1+r)^n
Future value = 30000 euro
Present value = 15000 euro
r = rate of interest = 12%
n = no of years = ?
Thus 30000 = 15000(1+12%)^n
=2 = (1+0.12)^n
2 = 1.12^n
Now assume n = 6
1.12^6 = 1.9738
Now assume n = 7
1.12^7 = 2.2107
Thus using interpolation , we can find n
| n | 1.12^n |
| 6 | 1.9738 |
| 7 | 2.2107 |
| 1 | 0.2369 |
| ? | 0.0262 |
= 0.0262/0.2369
= 0.11
Thus n = 6+0.11 = 6.11 years
Hence Answer ) A bit more than 6 years
