# SOLUTION document

Jun 17th, 2015
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I would want to buy a bike 12 years from now, which would cost \$24000 in 12 years. Let Interest rate = 7% (Interest rate of 7% is quite reasonable, and is not too heavy on the riskyness quotient.

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SOLUTION :I would want to buy a bike 12 years from now, which would cost \$24000 in 12 years.Let Interest rate = 7%(Interest rate of 7% is quite reasonable, and is not too heavy on the riskyness quotient.Using the present value formula : PV = FV/(l+R)" we get :Present Value = 24000; (l+0_07)f:l2= 24000x2.252 192= 10656.29 STherefore I need to have an investment of 10656.29 currently to buy the bike in 12 years.EXPLAIN ATION :The basic principle on which this problem stands is Time value of money. Time value of moneyprinciple suggests, that the purchasing power of

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