Question

Sarah is 27 years old and is retiring at the age of 65. When she retires, she estimates that she will need a semiannual income for 20 years. If Sarah contributes 9% of her semiannual income of $18,567.11 to a 401(k) paying 6.1% compounded semiannually, approximately what semiannual income will she be able to draw?

Answer 1

To calculate the semiannual income Sarah will be able to draw, use the future value formula for compound interest.

Step-by-step explanation:

To calculate the semiannual income Sarah will be able to draw, we can use the future value formula for compound interest:

FV = PV * (1 + r/n)^(nt)

Where:

FV is the future value

PV is the present value (semiannual income)

r is the annual interest rate (6.1%)

n is the number of times interest is compounded per year (2 times per year)

t is the number of years (20 years)

Using the given information:

PV = $18,567.11

r = 6.1% = 0.061

n = 2

t = 20

Plugging in these values into the formula, we get:

FV = $18,567.11 * (1 + 0.061/2)^(2*20)

Solving this equation, we find that the future value (semiannual income Sarah will be able to draw) is approximately $47,524.81.

Answer 2

In order for you to be able to solve this problem you have to first identify what the questions is asking. In this case it wants to know the approximation of what the semiannual income that Sarah will be able to draw.

To solve this you simply have to find the future value of her investment prior to retirement and use the as her investment amount upon retirement.