You want to retire in 25 years and you have just inherited $300,000. You believe you will need $1,450,000 upon retirement. What rate will you need to earn on the account to achieve this goal?
A) 4.5%
B) 5.5%
C) 6.5%
D) 8.5%

Question

Quizplus · Accepted Answer

To determine the needed rate of return, we can use the Future Value formula:

FV = PV * (1 + r)^n

where FV is the future value or desired amount ($1,450,000), PV is the present value ($300,000), r is the rate of return, and n is the number of years (25).

Plugging in the values we have, we get:

$1,450,000 = $300,000 * (1 + r)^25

Simplifying this equation, we get:

(1 + r)^25 = 4.833

Taking the 25th root of both sides, we get:

1 + r = 1.065

Subtracting 1 from both sides, we get the rate of return needed:

r = 0.065, or 6.5%

Therefore, the best choice is C) 6.5%.

You Want to Retire in 25 Years and You Have