Jane wants to have $200,000 in an account in 20 years. If her account earns 11 percent per annum over the accumulation period, how much must she save per year (end of year) to have the $200,000?
A) $25,116
B) $3,115
C) $10,000
D) $3,492

Question

Quizplus · Accepted Answer

This is a present value of an annuity problem. We need to find the annual payment that, when compounded annually at 11%, will result in a future value of $200,000 at the end of 20 years. Using the formula for present value of an annuity:

PMT = FV / (((1 + r)^n - 1) / r)

where PMT is the annual payment, FV is the future value, r is the interest rate per period (11% per year in this case), and n is the number of periods (20 years in this case). Plugging in the numbers, we get:

PMT = 200000 / (((1 + 0.11)^20 - 1) / 0.11) = $3,115.06

So Jane needs to save $3,115.06 per year (end of year) to have $200,000 in 20 years. The closest answer choice is B.

Jane Wants to Have $200,000 in an Account in 20