Question: Keith Nobrega is trying to determine the amount to set aside so that he will have enough money on hand in two years to overhaul

Keith Nobrega is trying to determine the amount to set aside so that he will have enough money on hand in two years to overhaul the engine on his vintage used car. While there is some uncertainty about the cost of engine overhauls in two years, by conducting some research on-line, Keith has developed the following estimates.

Engine Overhaul Estimated Cash Outflow _______Probability Assessment

$200 ............................................................................. 10%

450 .............................................................................. 30%

600 .............................................................................. 50%

750 ............................................................................... 10%

Instructions

How much should Keith deposit today in an account earning 6%, compounded annually, so that he will have enough money on hand in two years to pay for the overhaul?

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