or.greenriver.edu/courses/1516242/quizzes/3174510/take/questions/73027838 1 pts

Question

or.greenriver.edu/courses/1516242/quizzes/3174510/take/questions/73027838 1 pts Question 6 Would it be feasible for a person earning $75,000 per year over a 40-year time period to save enough to become a millionaire? No: even if the person saved $10,000 per year (more than 10 percent of their income), they would have only $400,000 after 40 years. O Yes if a person saved $5,000 per year (6.7 percent of their income) and invested it in a diverse stock portfolio earning a real annual rate of return of 7 percent (the long-term average of the stock market), the person would be a millionaire after 40 years. No; unless they were extremely fortunate, the person would have to save approximately $50,000 per year (two-thirds of their income) in order to become a millionaire. Yes: but only if they were able to earn an annual real rate of return of at least 15 percent which is well above the long-term average of stocks.

Explanation / Answer

B. Yes; if a person saved $5000 per year ......at 7% interest rate

Future value of an annuity = ((1+r)^n -1)/r

n-years

r-interest rate

Future value = 5000*(1.07^40 -1)/0.07 = approx. $1 million

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