Burton Bush wants to retire in Arizona when he is 80 years of age. Burton, who is now 55, believes he will need $400,000 to retire comfortably. To date, he has set aside no retirement money. If he gets an interest rate of 6% compounded annually, he will have to invest today (to the nearest dollar)

Question

Quizplus · Accepted Answer

We can use the formula for present value of a lump sum to solve for the amount that Burton needs to invest today:

PV = FV / (1 + r)^n

where PV is the present value, FV is the future value, r is the interest rate, and n is the number of periods.

In this case, Burton needs to have a future value of $400,000 when he is 80 years old, which is 25 years from now. We are given that the interest rate is 6%, compounded annually. So we have:

PV = 400000 / (1 + 0.06)^25
PV = 400000 / 3.3868
PV = $118,018.24

Therefore, Burton needs to invest $118,018.24 today in order to have $400,000 when he retires.

None of the answer choices are exactly equal to this amount, but the closest one is D) $93,200. Therefore, D) is the best choice.

Burton Bush Wants to Retire in Arizona When He Is