Sara wants to have $500 000 in her savings account when she retires. How much must she put in the account now, if the account pays a fixed interest rate of 8%, to ensure that she has $500 000 in 20 years' time?

Question

Quizplus · Accepted Answer

To find out how much Sara needs to deposit now to have $500,000 in 20 years at an 8% annual interest rate, we use the formula for the present value of a single future amount: $PV = \frac{FV}{(1 + r)^n}$, where PV is the present value, FV is the future value ($500,000), r is the annual interest rate (0.08), and n is the number of years (20). Plugging in the values, we get $PV = \frac{500,000}{(1 + 0.08)^{20}}$, which calculates to approximately $107,274.

Sara Wants to Have $500 000 in Her Savings Account