Computing annuity payment: Trevor Smith 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 on any investment he makes. (Round to the nearest dollar.)

Question

Quizplus · Accepted Answer

The correct answer is A. $13,464.To calculate the annuity payment, we can use the formula:PMT = (FV - PV) * r / ((1 + r)^n - 1)where:PMT is the annuity paymentFV is the future value (the amount you want to have at retirement)PV is the present value (the amount you already have in savings)r is the annual interest raten is the number of yearsIn this case, we have:FV = $1,000,000PV = $200,000r = 8%n = 15Plugging these values into the formula, we get:PMT = (1,000,000 - 200,000) * 0.08 / ((1 + 0.08)^15 - 1)PMT = $13,464Therefore, Trevor needs to save $13,464 each year to reach his target of $1,000,000 at retirement.

Computing Annuity Payment: Trevor Smith Wants to Have a Million