Question

Your parents will retire in 30 years. They currently have $300,000 saved, and they think they...

Your parents will retire in 30 years. They currently have $300,000 saved, and they think they will need $2,000,000 at retirement. What annual interest rate must they earn to reach their goal, assuming they don't save any additional funds? Round your answer to two decimal places.

Homework Answers

Answer #1

Answer : Calculation of Annual Rate of Return they must earn to reach Goal ;

Using RATE function of Excel:

=RATE(nper,pmt,pv,fv)

where

nper is the number of years in which the parents will retire i.e 30

pmt is periodic payment i.e 0

pv is the amount they currently have i.e 300,000

fv is the amount required at retirement i.e 2,000,000

=RATE(30,0,-300000,2000000)

Therefore Annual rate of Interest is 6.53%

Alternatively Rate of Interest = (Future Value / Present Value )^(1 / number of years) - 1

= (2000000 / 300000 )^(1 / 30) - 1

= 1.0653 - 1

= 0.0653 or 6.53%

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