Using the Time Value of Money charts provided, answer the following question. (Note to Instructors: Provide the appropriate tables to students from Personal Finance, Seventh Edition, Appendix C: Financial Tables.)
Judy would like to have $200,000 saved in her retirement account in 20 years. Assuming an interest rate of 10%, how much should she contribute each year?
A) $3,491.92
B) $2,000.00
C) $2,576.11
D) $4,376.77

Question

Quizplus · Accepted Answer

To calculate the annual contribution needed to reach a future value of $200,000 in 20 years at an interest rate of 10%, we can use the future value of an annuity formula:FV = PMT * [(1 + r)^n - 1] / rwhere:FV is the future value ($200,000)PMT is the annual contributionr is the annual interest rate (10%)n is the number of years (20)Solving for PMT, we get:PMT = FV * r / [(1 + r)^n - 1]Plugging in the values, we get:PMT = $200,000 * 0.10 / [(1 + 0.10)^20 - 1]PMT = $20,000 / 15.9374PMT = $3,491.92Therefore, Judy should contribute $3,491.92 each year to reach her retirement goal.

Using the Time Value of Money Charts Provided, Answer the Following