Question - Keith Bowie is trying to determine the amount to set aside so that he will have enough money on hand in 4 years to overhaul the engine on his vintage used car. While there is some uncertainty about the cost of engine overhauls in 4 years, by conducting some research online, Keith has developed the following estimates.
|
Engine Overhaul
Estimated Cash Outflow
|
Probability
Assessment
|
|
$210
|
10%
|
|
510
|
30%
|
|
770
|
50%
|
|
750
|
10%
|
How much should Keith Bowie deposit today in an account earning 8%, compounded annually, so that he will have enough money on hand in 4 years to pay for the overhaul?