Question

Suppose you wish to retire in 42 years on the equivalent of $67,000.00 in today's dollars. Also suppose that inflation over the coming years is 2.0 percent on average. How much money, per year, will you need to invest starting now, with zero initial investment, to attain the necessary nest egg for retirement if your investment pays a 4.0 percent yield? Round your answer to the nearest dollar. 30,694 Between 34,839 and 36,261

That 30,694 is wrong the right answer is between those bottom two values. Why am I getting this wrong?

Answer 1

Solution :

Amount required in 42 years in todays terms = $67000

Inflation rate = 2 %

Amount required at the end of 42 years = $67000 * (1.02)^42 = $153915.4

So lets suppose we invest x amount of money each year to get the nest amount.

Rate of return = 4% p.a

So, x * (1.04)^42 = 153915.4

= x = 153915.4 / (1.04)^42

= x = $ 29640.25

Hence, amount to be invested each year is $29640.25.