Question

Your parents will retire in 23 years. They currently have $250,000 saved, and they think they will need $1,150,000 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

Current savings (Present value) =				250000
Amount needed at retirement (Future Value) =				1150000
Time period =				23 Years
Present Value = Future Value / (1+r)^n
250000	.           = 1150000 / (1+r)^23
(1+r)^23 =	1150000/250000=		4.6
(1+r) =	(4.6)^(1/23)
1+r =	1.068600955
r =	0.068600955	or 6.86%
So, Interest rate they earn to reach their goal is 6.86%.