Answer:
You can spend $4,913.86 to buy a motorbike.
Explanation:
Giving the following information:
You were given $16,000 by a relative with no strings attached. You decide to pursue 2 goals: (1) buy a motorbike today and (2) buy a used car for $12,000 when you graduate college in 4 years. Your interest rate is 2% compounded annually.
To buy the car, you can separate in the present the amount of money required to reach $12,000 in 4 years. The rest of the money can be used to buy a motorbike.
First, we need to calculate the present value of $12,000 using the following formula:
PV= FV((1+i)^n
PV= 12,000/1.02^4= $11,086.14
16,000 - 11,086.14= $4,913.86
