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7 October, 04:30

You want to have the equivalent of $700,000 (in terms of today's spending power) when you retire in 30 years. Assume a 3% rate of annual inflation. If you can earn 10% annually, how much do you have to invest per year in order to have your full amount of money needed at retirement? (A) 21230.00 (B) 85,651.00 (C) 7856.00 (D) 10,329.00

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  1. 7 October, 04:46
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    The correct answer is D: $10,329

    Explanation:

    Giving the following information:

    You want to have the equivalent of $700,000 (in terms of today's spending power) when you retire in 30 years. Assume a 3% rate of annual inflation. The interest rate is 10% annual.

    First, we need to determine how much is $700,000 in 30 years.

    FV = PV * (1+i) ^n

    FV = 700000 * (1.03^30) = $1,699,083.73

    Now, we can calculate the annual payment required using the following formula:

    FV = {A*[ (1+i) ^n-1]}/i

    A = annual payment

    Isolating A:

    A = (FV*i) / {[ (1+i) ^n]-1}

    A = (1,699,083.73 * 0.10) / [ (1.10^30) - 1] = $10329
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