Question

Kenneth Clark is saving for an Australian vacation in three years. He estimates that he will need $4,970 to cover his airfare and all other expenses for a week-long holiday in Australia. If he can invest his money in an S&P 500 equity index fund that is expected to earn an average annual return of 11.4 percent over the next three years, how much will he have to save every year if he starts saving at the end of this year? (Round factor values to 4 decimal places, e.g. 1.5212 and final answer to 2 decimal places, e.g. 15.25.)

Answer 1

Answer:

Amount required at the end of 3 years = $4,970

Annual return = 11.4%

Amount to be saved every year at the end of year = PMT(rate, nper, pv, fv, type) = PMT(11.4%, 3, 0, -4970, 0)

= $1481.37

Amount he will have to save every year if he starts saving at the end of this year = $1,481.37