Question

In: Finance

Amanda, age 25, currently has $10,000 in her savings account. She figures that she can save...

Amanda, age 25, currently has $10,000 in her savings account. She figures that she can save $20,000 per year at the start of each year (starting one year from now) indefinitely. She thinks that she can earn an after-tax return of 8% on her investments. She wants to have $1,000,000 at which point she will retire. How long will it take her to achieve her goal? Round your answer to 1 decimal point.

Solutions

Expert Solution

Here

Present savings = $10,000

Interest rate = 8%

Saving per year = $20000

Amount at retirement = $1,000,000

So

1000000 = Future Value of Present savings + Future Value of Saving per year

1000000 = 1000 (0.08)n + ((20000) / (0.08)) / ((1+0.08)n - 1)

n = 20.4

So it will take her 20.4 years to achieve her goal


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