Question

Burton Bush wants to retire in Arizona when he is 80 years of age. Burton, who is now 55, believes he will need $400,000 to retire comfortably. To date, he has set aside no retirement money. If he gets an interest of 6 percent compounded annually, he will have to invest today

Answer 1

Comment if you need clarification!

Answer 2

The initial invest must be 93.199,45

Explanation:

Topic: Compound Interest

Remember the present value and future value formulas. the one needed for this excersice is present value formula, as it follows

`P_(v)  = F_(v)/(1+i)^(n)`

to calculate the n value you have to sustract the age of retirement and the actual age being

`n= 80 - 55 = 25`

and the compound interest being 6% annually

so the calculation would be

`P_(v)  = (F_(v))/((1+6\%)^(n) )`

replacing the values would make

`P_(v) = (400.000)/(((1+0.06)^(25) )  = 93.199,45`