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Today, Bruce and Brenda each have $300,000 in an investment account. No other contributions will be...

Today, Bruce and Brenda each have $300,000 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 $1.5 million, at which time each will retire. Bruce has his money invested in risk-free securities with an expected annual return of 4 percent. Brenda has her money invested in a stock fund with an expected annual return of 9 percent. How many years after Brenda retires we expect Bruce to retire?Please provide step-by-step instructions for solving the problem

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Answer #1

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Step 1: Find the number of years it will take for each $300,000 investment to grow to $1,500,000.

BRUCE: I/YR = 4; PV = -300000; PMT = 0; FV = 1500000; and then solve for N = 41.04.

BRENDA: I/YR = 9; PV = -300000; PMT = 0; FV = 1500000; and then solve for N = 18.68.

Step 2: Calculate the difference in the length of time for the accounts to reach $1.5 million:

Bruce will be able to retire in 41.04 years, or 41.04 – 18.68 = 22.36

22 years after Brenda does.

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