You would like to have $500,000 put away in 20 years for your retirement. You plan to put away $14,000 each year (end of year). What is the minimum interest rate that you would need to receive $500,000?
A) 4.5%
B) 5.72%
C) 6.5%
D) 5%

Question

Quizplus · Accepted Answer

This is a future value of an annuity problem, where you are trying to find the interest rate that will allow a series of equal payments (annuity) to grow to a certain amount in the future. Using the future value of an annuity formula or a financial calculator, you can input the annual payment ($14,000), the number of periods (20 years), and the future value ($500,000) to solve for the interest rate. The correct answer, 5.72%, is the minimum interest rate needed to achieve a future value of $500,000 from annual payments of $14,000 over 20 years.

You Would Like to Have $500,000 Put Away in 20