James Perkins wants to have a million dollars at retirement, which is 15 years away. He already has $200,000 in an IRA earning 8 percent annually. How much does he need to save each year, beginning at the end of this year, to reach his target? Assume he could earn 8 percent annually on any investment he makes. (Round to the nearest dollar.)

Question

Quizplus · Accepted Answer

The correct answer is A.To reach his target, James needs to save $800,000 ($1,000,000 - $200,000) over 15 years. Using the future value of an annuity formula, we can calculate the annual savings required:FV = PMT * [(1 + r)^n - 1] / rwhere:FV = future value ($800,000)PMT = annual savingsr = annual interest rate (8%)n = number of years (15)Solving for PMT, we get:PMT = FV * r / [(1 + r)^n - 1]PMT = $800,000 * 0.08 / [(1 + 0.08)^15 - 1]PMT = $13,464 (rounded to the nearest dollar)

James Perkins Wants to Have a Million Dollars at Retirement