Question

Sarah wants to have $500,000 in her savings account when she retires. how much must she put in the account now, if the account pays a fixed interest rate of 8%, to ensure that she has $500,000 in 20 years?`

Answer 1

She mus put $107,274 in the account now, if the account pays a fixed interest rate of 8%, to ensure that she has $500,000 in 20 years.

Step-by-step explanation:

Future Target amount = FV = $500,000

Interest rate = r = 8% = 0.08

Number of years = n = 20 Years

Use Present value formula to calculate the investment to be made now to make $500,000 after 20 years.

Present value = Future value / ( 1 + r )^n

PV = FV / ( 1 + r )^n

PV = $500,000 / ( 1 + 0.08 )^20

PV = $500,000 / 4.661

PV = $107,274.10