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29 April, 17:21

Assume your goal in life is to retire with three million dollars. How much would you need to save at the end of each year if interest rates average 5% and you have a 10-year work life (the closest answer)

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  1. 29 April, 17:42
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    Annual savings = $238,512

    Explanation:

    Given dа ta:

    Interest rate (r) = 5%

    Number of years (n) = 10 years

    Future value (Fv) = $3,000,000

    Annual savings = ?

    Calculating the future value of annuity factor using the formula;

    Future value annuity factor (r%, n) = [ (1 + r) ¹⁰ - 1]/r

    Substituting, we have

    Future value annuity factor (5%, 10) = [ (1 + 0.05) ¹⁰ - 1]/0.05

    = [ (1.05) ¹⁰ - 1]/0.05

    = (1.6289 - 1) / 0.05

    = 0.6289/0.05

    = 12.578

    But,

    Future value = Annual savings x Future value annuity factor (r%, n)

    Substituting, we have

    $3,000,000 = Annual savings x 12.578

    Annual savings = 3,000,000/12.578

    = $238,512
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