Question

Derek can deposit $11,000 on each birthday beginning with his 26th and ending with his 65th. What will the rate on the retirement account need to be for him to have $3,000,000 in it when he retires on his 65th birthday?

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Answer format: Percentage Round to: 4 decimal places (Example: 9.2434%, % sign required. Will accept decimal format rounded to 6 decimal places (ex: 0.092434))

Answer 1

Information provided:

Present price= $11,000

Future value= $3,000,000

Time= 65 years - 26 years = 39 years

The question is solved by computing the yield to maturity.

The yield to maturity is calculated by entering the below in a financial calculator:

FV= 3,000,000

PV= -11,000

N= 39

Press the CPT key and I/Y to compute the yield to maturity.

The value obtained is 15.4661.

Therefore, the retirement account needs to earn a rate of 15.4661% to have $3,000,000 on the 65th birthday.