Hyun just turned 25 today. By her 60^th birthday she would like to have $1,000,000 saved. She plans to invest equal annual payments beginning with her 26^th birthday and ending on her 60^th birthday. If all invested funds earn 8% annually, how much does she need to invest each year to have exactly $1,000,000 by her 60^th birthday?

Question

Quizplus · Accepted Answer

Hyun needs to invest annually for 35 years (from age 26 to 60) to reach her goal of $1,000,000. Using the formula for the future value of an annuity (FVA = P * [((1 + r)^n - 1) / r]), where P is the annual payment, r is the annual interest rate (0.08 in this case), and n is the number of payments (35 years), and solving for P gives us the annual amount she needs to invest. Plugging in the values ($1,000,000 = P * [((1 + 0.08)^35 - 1) / 0.08]), we find that P equals approximately $5,803.26, making option C correct.

Hyun Just Turned 25 Today