Your parents agree to pay half of the purchase price of a new car when you graduate from college. You will graduate and buy the car two years from now. You have $6,000 to invest today and can earn an annual of 10% interest on invested funds. If your parents match the amount of money you have in two years, what is the maximum you can spend on the new car?
Solution:
Future value of $6,000 in 2 years = $6,000 * (1+0.10)^2 = $7,260
Maximum that can be spend on new car = $7,260 + $7,260 = $14,520
Your parents agree to pay half of the purchase price of a new car when you...