You would like to have enough money saved to receive a growing annuity for 20 years, growing at a rate of 5 percent per year, with the first payment of $50,000 occurring exactly one year after retirement. How much would you need to save in your retirement fund to achieve this goal? The interest rate is 10 percent.
A)$1,000,000.00
B)$425,678.19
C)$605,604.20
D)$827,431.28

Question

Quizplus · Accepted Answer

To calculate the present value of a growing annuity, use the formula: PV = Pmt / (r - g) * [1 - ((1 + g) / (1 + r))^n], where Pmt is the first payment, r is the interest rate, g is the growth rate, and n is the number of periods. Plugging in the values: PV = 50000 / (0.10 - 0.05) * [1 - ((1 + 0.05) / (1 + 0.10))^20] gives approximately $605,604.20.

You Would Like to Have Enough Money Saved to Receive