Asked by Aydee Esparza on May 11, 2024
Verified
John is 25 years old and wishes to retire in 30 years. His plan is to invest in a mutual fund earning a 12 percent annual return and have a $1 million retirement fund at age 55. How much must he invest at the end of each year to achieve this goal?
A) $7,499.96
B) $5,024.60
C) $4,143.65
D) $33,333.33
Annual Return
The percentage of gain or loss on an investment over a one-year period, taking into account both capital gains and dividends.
Retirement Fund
Financial resources that have been saved and are used to support a person's retirement.
Mutual Fund
An investment vehicle made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments.
- Formulate a financial savings strategy to meet long-term objectives through the application of compound interest computations.
- Calculate the return on investment and comprehend its effects on making investment choices.
Verified Answer
GR
Geralt RiviaMay 14, 2024
Final Answer :
C
Explanation :
Using the formula for the future value of an annuity, we can calculate the annual investment needed:
$1,000,000 = X * [(1 + 0.12)^30 - 1] / 0.12
where X is the annual investment. Solving for X, we get:
X = $4,143.65
So John needs to invest $4,143.65 at the end of each year to achieve his goal. Therefore, the best choice is C.
$1,000,000 = X * [(1 + 0.12)^30 - 1] / 0.12
where X is the annual investment. Solving for X, we get:
X = $4,143.65
So John needs to invest $4,143.65 at the end of each year to achieve his goal. Therefore, the best choice is C.
Learning Objectives
- Formulate a financial savings strategy to meet long-term objectives through the application of compound interest computations.
- Calculate the return on investment and comprehend its effects on making investment choices.