To find the required rate of return so that $120,000 can provide annual benefits of $20,000 for the next 14 years, one needs to solve for the interest rate in the present value of an annuity formula. This problem generally requires numerical methods or the use of a financial calculator since it lacks a simple algebraic solution.
The subject in question involves calculating the required rate of return on an investment to provide a certain number of fixed payments in the future, which is a problem related to finance and annuities. Specifically, we are seeking the interest rate needed so that $120,000 can provide a series of 14 annual payments of $20,000 each. This type of problem can be solved using the present value of an annuity formula. However, the complexity of this calculation often requires numerical methods or financial calculators, as there is no simple algebraic solution for the interest rate in annuity formulas. Therefore, exact numbers are not provided in this answer, but the concept to be applied is the calculation of the present value of an annuity or the use of a financial calculator to determine the needed rate.
For example, starting with an investment or savings early in life can leverage the power of compound interest. A well-diversified stock portfolio with an assumed 7% real annual rate of return could substantially increase the value of the initial amount invested, as shown in the compound interest formula: 3,000(1+.07)40 = $44,923.