Question

Joe just completed his engineering degree and started to work for an engineering firm. Joe wants to retire early after 30 years working. He plans to invest $5,000 at the end of every year for a 30-year career. If Joe needs $3,954,750 in savings at retirement, what interest rate must the investment earn?A. 10%B. 12.16%C. 18%D. 20%

Answer 1

Joe will need to save at an interest rate of:

C. 18%

Step-by-step explanation:

a) Data and Calculations:

Working life = 30 years

Annual investment = $5,000

Future expected savings = $3,954,750

Joe will need an annual return rate of 18.000% to reach the future value of $3,954,750.00.

FV (Future Value) $3,954,752.25

PV (Present Value) $27,584.01

N (Number of Periods) 30.000

I/Y (Interest Rate) 18.000%

PMT (Periodic Payment) $5,000.00

Starting Investment $0.00

Total Principal $150,000.00

Total Interest $3,804,752.25