You want to save an equal amount each year for the next 38 years,at which time you will retire.What amount of annual savings are needed if you desire a retirement income of $55,000 a year for 25 years and earn 7.5 percent,compounded annually?

Question

Quizplus · Accepted Answer

We can use the present value of annuity formula to solve for the annual savings needed:

PV = PMT * ((1 - (1 + r)^-n) / r)

Where PV = present value (which is our retirement income for 25 years), PMT = annual savings needed, r = annual interest rate, and n = number of periods (which is 38 years).

Substituting in the values, we get:

55000 = PMT * ((1 - (1 + 0.075)^-25) / 0.075) * (1 + 0.075)^-38

PMT = 3146.32

Therefore, the annual savings needed is $3,146.32. The correct answer is C.

You Want to Save an Equal Amount Each Year for the Next