Gordon and Lisa estimate that they will need $1,875,000 in 40 years for their retirement fund. If they can earn 8% annually on their funds, how much do they need to save annually? (Round to the nearest whole dollar.)
A)$7,238
B)$7,987
C)$8,103
D)$9,234
E)$9,875

Question

Quizplus · Accepted Answer

To find out how much Gordon and Lisa need to save annually, we can use the formula for the future value of an annuity: $FV = P \times \left(\frac{(1 + r)^n - 1}{r}\right)$, where FV is the future value, P is the annual payment, r is the annual interest rate, and n is the number of years. Rearranging the formula to solve for P gives us $P = FV \div \left(\frac{(1 + r)^n - 1}{r}\right)$. Plugging in the values: $P = 1,875,000 \div \left(\frac{(1 + 0.08)^{40} - 1}{0.08}\right)$, calculating this gives us approximately $7,238, which rounds to the nearest whole dollar.

Gordon and Lisa Estimate That They Will Need $1,875,000 in 40