(Related to Checkpoint 5.4) (Present value) Sarah Wiggum would like to make a single investment...
(Related to Checkpoint 5.4) (Present value) Sarah Wiggum would like to make a single investment and have
$1.71.7
million at the time of her retirement in
3030
years. She has found a mutual fund that will earn
44
percent annually. How much will Sarah have to invest today? If Sarah earned an annual return of
1616
percent, how soon could she then retire?
a. If Sarah can earn
44
percent annually for the next
3030
years, the amount of money she will have to invest today is
$nothing.
(Round to the nearest cent.)
Homework Answers
Present value = Future value / (1 + r)N
(i) When interest rate = 4%
Present value = $1.7 million / (1.04)30 = $1,700,000 / 3.2434 = $524,141.33
(ii) When interest rate = 16%
Present value = $1.7 million / (1.16)30 = $1,700,000 / 85.8499 = $19,802.00
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