Question: Jim Bowie is trying to determine the amount to set aside so that he will have enough money on hand in 4 years to overhaul

Jim 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 truck. While there is some uncertainty about the cost of engine overhauls in 4 years, by conducting some research online, Jim has developed the following estimates.

Engine Overhaul Probability

Estimated Cash Outflow Assessment

$ 500 ............10%

1,200 ............25%

2,000 ............50%

2,500 ............15%

Instructions

How much should Jim Bowie deposit today in an account earning 4% compounded annually, so that he will have enough money on hand in 4 years to pay for the overhaul?

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