Doug wants to go on vacation to Disneyland with his family every 5 years. He figures...

Doug wants to go on vacation to Disneyland with his family every 5 years. He figures that travel costs today are $3,000 for all expenses associated with the trip, and he expects these costs to increase with inflation. Assume inflation is 2%, compound quarterly. He wants to take his family on their next Disneyland trip in exactly 5 years, and he wants to do these trips for the next 50 years. If he can earn 6.6% APR, compounded monthly, on his investments. How much would Doug need to invest today in order to pay for the next 50 years of Disneyland trips?

Solutions

Expert Solution

Doug needs to invest $10,463.53 today to pay his Disneyland trips for next 50 years.

Step 1: Calculating effective annual inflation rate and effect APR.

Step 2: Computing inflation adjusted vacation costs for every 5 years.

Step 3: Computing PV of vacation costs incurred at the effective APR rate of 6.8%

Step 4: Sum up col: PV of vacation costs incurred = $10,463.53 which is the amount which Doug needs to invest today in order to finance his vacations for next 50 years.

jeff jeffy answered 1 year ago

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