To compute how much you would need to save each year for the next 25 years to allow you to withdraw $20,000 for the following 30 years, you would need to use
A) the future value of an annuity.
B) the present value of an annuity.
C) both future and present value of an annuity.
D) both present and future value of $1.

Question

Quizplus · Accepted Answer

To compute how much you need to save each year for the next 25 years to allow you to withdraw $20,000 for the following 30 years, you need to consider both the future value of the annuity (to accumulate the savings over the 25 years) and the present value of the annuity (to determine the amount needed today to ensure the 30 years of withdrawals). This involves understanding how much your savings will grow over the saving period and how much capital you need at the beginning of the withdrawal period to sustain the withdrawals.

To Compute How Much You Would Need to Save Each