Question

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.

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%