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Alison is 28 years old and plans to retire at age 65 with 1,060,000 in her...

Alison is 28 years old and plans to retire at age 65 with 1,060,000 in her retirement account. What amount would she have to set aside now in investment paying 7% annual interest if the compounding is done daily? (Assume 365 days in a year.)

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Answer #1

Future value of investment is calculated as: F= P*(1+(r/n))^(n*t); where F is Future value of the investment, P is Present value of the investment, r is the annual interest rate, n is number of times compounded per year and t is the number of years.

Given that the final amount should be 1060000. Number of years is 65-28= 37 Years, r is 7%, n is 365, becuase it was a daily compounding.

On Substituting, we get,

1060000= P*(1+7%/365)^(37*365)

1060000= P*13.326

P= 1060000/13.326

P= $79540.99

So, She should keep aside an amount of $79540.99

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