Your finance professor suggests that you should have $3,000,000 in your retirement portfolio before you even THINK about retiring.Recently,your aunt sold valuable California real estate and handed you a check for $387,500.(This is the amount you have after paying taxes.She is now your favorite aunt.)How much of the $387,500 must you set aside today if you invest a portion of the money at an annual rate of 7.5% and you wish to retire in 38 years with the amount suggested by your finance professor?
A)$169,086
B)$192,132
C)$306,187
D)At an annual rate of return of 7.5.0%,$387,500 is not a large enough investment to reach the goal amount of $3,000,000 in 38 years.

Question

Quizplus · Accepted Answer

To find out how much of the $387,500 must be set aside today to reach a future value of $3,000,000 in 38 years at an annual interest rate of 7.5%, we use the formula for the present value of a future amount: $PV = \frac{FV}{(1 + r)^n}$, where PV is the present value, FV is the future value ($3,000,000), r is the annual interest rate (7.5% or 0.075), and n is the number of years (38). Plugging in the values, we get $PV = \frac{3,000,000}{(1 + 0.075)^{38}}$, which calculates to approximately $192,132. This means you need to set aside $192,132 today at an annual rate of 7.5% to reach $3,000,000 in 38 years.

Your Finance Professor Suggests That You Should Have $3,000,000 in Your