You would like to have enough money saved after your retirement such that you and your heirs can receive $100,000 per year in perpetuity. How much would you need to have saved at the time of your retirement in order to achieve this goal? (Assume that the perpetuity payments start one year after the date of your retirement. The annual interest rate is 12.5 percent.)
A)$1,000,000
B)$10,000,000
C)$800,000
D)$1,125,000

Question

Quizplus · Accepted Answer

To find the amount needed to save to receive $100,000 per year in perpetuity at an annual interest rate of 12.5%, you use the formula for the present value of a perpetuity: PV = C / r, where C is the annual cash flow ($100,000) and r is the annual interest rate (0.125). Thus, PV = $100,000 / 0.125 = $800,000.

You Would Like to Have Enough Money Saved After Your