17.7k views
4 votes
Your parents will retire in 15 years. They currently have $330,000 saved, and they think they will need $1,500,000 at retirement. What annual interest rate must they earn to reach their goal, assuming they don't save any additional funds? Round your answer to two decimal places.

User Metareven
by
8.6k points

1 Answer

3 votes

Final answer:

To reach their retirement goal, your parents must earn an annual interest rate of approximately 15.56%.

Step-by-step explanation:

To determine the annual interest rate your parents must earn to reach their retirement goal, we can use the compound interest formula. The formula is
A = P(1 + r)^n, where A is the future value, P is the present value, r is the annual interest rate, and n is the number of years. In this case, we have P = $330,000, A = $1,500,000, and n = 15. We need to solve for r.

Plugging in the values, we get $1,500,000 =
$330,000(1 + r)^(15). To solve for r, we need to isolate it. Divide both sides by $330,000:
(1 + r)^(15) = 4.54545455. Next, take the 15th root of both sides: 1 + r = 1.15562735. Finally, subtract 1 from both sides to isolate r: r = 0.1556.

Your parents must earn an annual interest rate of approximately 15.56% to reach their retirement goal.

User Indhira
by
8.9k points