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24 April, 06:03

Bonnie has decided to begin a retirement savings program where she will contribute to an account that will accumulate tax free throughout her working life. She expects to retire in exactly 12 years from today, and her goal is to have accumulated the amount of $300000 when she reaches her future retirement age.

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  1. 24 April, 06:05
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    This question is incomplete since the interest rate is not included and so is the requirement. However, if it asking for the annual contributions Bonnie can make, you can calculate it as shown below and assuming a discount rate of 10%;

    Explanation:

    Since Bonnie's goal is $300,000, this will be the future value and you can use a financial calculator to solve for recurring deposits (PMT);

    Time to retirement; N = 12

    Interest rate; I/Y = 10%

    Future value; FV = 300,000

    One time present cashflow; PV = 0

    then compute the recurring deposits; CPT PMT = 14,028.995

    Therefore, she will need to contribute $14,029 every year to meet her goal.
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