You estimate you'll need $200,000 per year for 25 years starting on your 65th birthday to live on during your retirement.Today is your 50th birthday and you want to make equal deposits into an account paying 9% interest per year,the first deposit today and the last deposit on your 64th birthday.How much must each deposit be (rounded to the nearest $10)?

Question

Quizplus · Accepted Answer

To solve this, we use the formula for the present value of an annuity to calculate how much needs to be saved by the 65th birthday to support the $200,000 per year for 25 years at 9% interest. Then, we calculate the amount that needs to be deposited annually to reach this amount by the 65th birthday, also at 9% interest. The correct calculation leads to choice C, $66,909, as the annual deposit required.

You Estimate You'll Need $200,000 Per Year for 25 Years