Hello,
Paulo plans to buy a holiday villa in five years' time for cash. He estimates the cost will be $1.5m. He plans
to set aside the same amount of funds each year for five years, starting immediately and earning a rate of
10% interest per annum compound.
To the nearest $100, how much does he need to set aside each year?
A $223,400
B $245,600
C $359,800
D $395,600
1. The answer is A.
2. Could you please explain what the question is actually asking to do?
-I am trying to figure this out in the answer but unable to do so.
Thanks
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Investment Appraisal
5y ago#1The answer is indeed A.
To end up with the $1.5M needed, then the PV of the equal annual amount saved must be equal to the PV of the $1.5M needed in 5 years time.
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