Question

Today, Bruce and Brenda each have $150,000 in an investment account. No other contributions will be made to their investment accounts. Both have the same goal: They each want their account to reach $1 million, at which time each will retire. Bruce has his money invested in risk-free securities with an expected annual return of 5 percent. Brenda has her money invested in a stock fund with an expected annual return of 10 percent. How many years after Brenda retires will Bruce retire?

Answer 1

The number of years is computed as follows:

N for Bruce is computed as follows:

Plug the below variable in the financial calculator as follows:

PV = - 150,000

FV = 1,000,000

I/Y = 5

PMT = 0

Finally press CPT and then N. It will give N equal to 38.8832466 years

N for Brenda is computed as follows:

Plug the below variable in the financial calculator as follows:

PV = - 150,000

FV = 1,000,000

I/Y = 10

PMT = 0

Finally press CPT and then N. It will give N equal to 19.90469422 years

So, the difference in years will be as follows:

= 38.8832466 years - 19.90469422 years

= 18.98 years Approximately

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