As Michelle’s new year resolution, she wants to begin saving for her retirement.

Question

As Michelle’s new year resolution, she wants to begin saving for her retirement. She hired you as her financial advisor. Follow your suggestion, today Michelle will deposit $100,000, an inheritance from her parents, into a 5-year savings account at Citi bank that pays 3.25% interest annually.

Use the above information to answer the following questions. When you answer your question, make sure include the calculation steps or formula. (Assume END mode)

5. Assume after 5 years, Michelle will be 40 years old and will have $150,000 in her saving account, and she is planning to retire at 65 years old and she will need $1,000,000 at retirement. What annual interest rate must she earn to reach her goal, assuming each year she will only save $20,000. (5%)

Explanation / Answer

Here n = 15 years, r = ? FV =1000,000$

This can be formulated as below

150,000*FVIF(r%,15) + 20,000*FVIFA(r%,15) = 1000,000

Assuming r = 7.82411%

150,000*3.09553 + 20000*26.78328

=464333+535667

=1000,000$

Thushe must earn interest @ 7.82411%

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