Question

You have $50,000 in an account today, and can save $6,000 per year for 30 years. What compounded rate of return would you need in order to have exactly $1,000,000 at the end of 30 years? Group of answer choices 9.80% 5.02% 7.24% 10.07%

Answer 1

Let us first go through the given details in the question:

• PV (Present Value) in an account today = 50000$
• PMT (Payment/investment per year) = 6000$
• N (Number of years of investment) = 30 years
• FV (Future Value of investment required) = 1000000$
• Calculate Interest rate (I/Y) required to achieve the future value of 1000000$

This question can be solved either by using TVM calculator or excel by putting the following inputs:

1. PV = 50000$ (Negative value as you are investing this and it is cash outflow into an account)
2. PMT = 6000$ (Negative value as you are investing this and it is cash outflow into an account)
3. N = 30
4. FV = 1000000$ (Positive value as this is the cash outflow)

Compute I/Y?

The I/Y or Interest rate is 7.24492%

Therefore the correct answer is 7.24%

I hope you find this useful and leant something today. Thank-You!