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Homework answers / question archive / Peter and Mary want to buy identical GT2 911s in 7 years, to establish bragging rights at the Nordschleife
Peter and Mary want to buy identical GT2 911s in 7 years, to establish bragging rights at the Nordschleife. Paul will buy a Huracan, but wisely isn't going to bother showing up. The GT2 costs $378,000 today which is expected to increase at an annualrate of 2.2% per year. Both will invest a single amount today in accounts that pay 5.5% APR, but Peter's account compounds monthly,and Mary's semiannually. How much more must Mary invest compared to Peter?
| 1] | Price of the GT2 911 after 7 years with adjustment for inflation = 378000*1.022^7 = | $ 440,198.01 |
| 2] | Amount Peter should invest today, with monthly compounding = 440198.01/(1+0.055/12)^84 = | $ 299,796.60 |
| 3] | Amount Mary should invest today, with semi-annual compounding = 440198.01/(1+0.055/2)^14 = | $ 301,094.24 |
| 4] | Amount Mary should invest more than Peter = 301094.24-299796.60 = | $ 1,297.64 |
