For a long time, Sally has been investing $7,000 at the end of every six months. The value of her savings today is $2,500,000. She has made wise investment decisions and has earned a return of 16.4% compounded semi-annually. How long ago (rounded off to the nearest whole year) did Sally start this savings plan?

Question

Quizplus · Accepted Answer

To find out how long ago Sally started saving, we need to calculate the number of periods (n) using the future value of an annuity formula: FV = Pmt * [(1 + r)^n - 1] / r, where FV is the future value ($2,500,000), Pmt is the payment ($7,000), and r is the interest rate per period (16.4%/2 = 8.2% or 0.082). Solving for n gives approximately 44 periods, which translates to 22 years (since there are two periods per year).

For a Long Time, Sally Has Been Investing $7,000 at the End