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James Smith is saving for an Australian vacation in three years.He estimates that he will...

James Smith is saving for an Australian vacation in three years. He estimates that he will need $4,000 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 9.0 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.)

Savings
$

Solutions

Expert Solution

The amount is computed as follows:

Future value = Annual savings x [ [ (1 + r)n – 1 ] / r ]

$ 4,000 = Annual savings x [ [ (1 + 0.09)3 - 1 ] / 0.09 ]

$ 4,000 = Annual savings x 3.2781

Annual savings = $ 1,220.22 Approximately

jeff jeffy answered 2 years ago
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