Question

Your parents will retire in 20 years. They currently have $300,000 saved, and they think they will need $1,450,000 at retirement. What annual interest rate must they earn to reach their goal, assuming they don't save any additional funds?

Answer 1

n=20 periods (years)
present value, P = 300,000
future value, F= 1450000
i=annual interest rate


`F=P(1+i)^n`

`1450000=300000(1+i)^(20)`

`(1+i)^(20)=1450000/300000`

`(1+i)^(20)=29/6`

`(1+i)=(29/6)^(1/20)`

`i=(29/6)^(1/20)-1`

`i=(29/6)^(1/20)-1`

`=1.081963-1`

`=0.081963`

`=8.1963%`

Answer: they need to earn 8.1963% or more to achieve their goal.