Mr. Hopper is expected to retire in 25 years and he wishes accumulate $750,000 in his retirement fund by that time. If the interest rate is 10% per year, how much should Mr. Hopper put into the retirement fund each year in order to achieve this goal? [Assume that the payments are made at the end of each year]
A) $4,559.44
B) $2,500
C) $7,626.05
D) None of the above

Question

Quizplus · Accepted Answer

This is a case of annuity where Mr. Hopper has to make equal yearly payments to achieve his desired retirement fund balance. The formula to calculate the periodic payment is:

P = (PV * r) / [1 - (1 + r)^-n]

Where,
PV = present value (desired retirement fund balance) = $750,000
r = interest rate per year = 10%
n = number of periods (years) = 25

Plugging in the values, we get:

P = (750,000 * 0.1) / [1 - (1 + 0.1)^-25]
P = $7,626.05

Therefore, Mr. Hopper should put $7,626.05 into the retirement fund each year in order to achieve his goal. Choice C is the correct answer.

Mr Hopper Is Expected to Retire in 25 Years and He