Jamal plans to retire in 17 years. He is saving $2000 every start of the month in a retirement savings account paying him a long-term interest of 9% compounded monthly until retirement. The rate changes following the retirement. He wants $7000 per month paid to him at the start of the month for 20 years after the retirement. At what rate should his savings account pay him to fulfill his dream? (Use the Rate function in Excel)

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Quizplus · Accepted Answer

To solve this, we use the Excel RATE function twice. First, to calculate the future value (FV) of the savings after 17 years of monthly contributions of $2000 at a 9% annual interest rate compounded monthly. Then, we use the RATE function again to find the rate needed to withdraw $7000 per month for 20 years from the accumulated savings.1. Calculate FV of savings after 17 years:=FV(9%/12, 17*12, -2000, 0, 1) 2. Use the FV as the present value (PV) for the next calculation, and find the rate for the withdrawals:=RATE(20*12, -7000, PV, 0, 1)This gives us a rate of approximately 6.22%, matching option C.

Jamal Plans to Retire in 17 Years