Question

Sarah Wiggum would like to make a single​lump-sum investment and have ​$1.6 million at the time of her retirement in 32 years. She has found a mutual fund that expects to earn 4 percent annually.

How much must Sarah invest​ today?
If Sarah earned an annual return of 16 ​percent, how much must she invest​ today?
If Sarah can earn 4 percent annually for the next 32 ​years, how much will she have to invest​ today?

Answer 1

Answer and Explanation:

The computation is shown below:

When the rate of interest is 16% so the amount she invested now is

= $1,600,000 ÷ (1.16)^32

= $13,850

And, when the rate of interest is 4%, so the amount she invested now is

= $1,600,000 ÷ (1.04)^32

= $524,590

In this way it should be determined