Question

With a retirement plan target of having $250,000 in 20 years, how much interest must you earn on your $72,500 in order to achieve this goal?

a) 7.50%
b) 10.85%
c) 8.62%
d) 6.38%

Answer 1

To achieve a retirement goal of $250,000 in 20 years with an initial amount of $72,500, you would need to earn approximately 8.62% interest.

Step-by-step explanation:

To find out how much interest you need to earn, we can use the formula for compound interest: A = P(1+r/n)^(nt)

Where A is the desired goal amount ($250,000), P is the initial investment ($72,500), r is the interest rate, n is the number of times interest is compounded per year (assuming annually), and t is the number of years (20).

Using this formula, we can rearrange it to solve for r: r = (A/P)^(1/nt) - 1

Plugging in the given values, we get: r = (250000/72500)^(1/(20*1)) - 1 ≈ 0.0862 ≈ 8.62%

Therefore, you must earn around 8.62% interest on your $72,500 to achieve your goal of $250,000 in 20 years.