Math Problem Statement
You feel that you will need $2.1 million in your retirement account and when you reach that amount, you plan to retire. You feel you can earn an APR of 10.1 percent compounded monthly and plan to save $290 per month until you reach your goal. How many years will it be until you reach your goal and retire?
Multiple Choice
37.87 years
50.29 years
42.88 years
41.03 years
35.17 years
Solution
To determine how many years it will take to reach your retirement goal, we can use the Future Value of an Annuity formula, which accounts for regular monthly contributions compounded at a given interest rate. The formula is:
Where:
- is the future value (your retirement goal of $2,100,000).
- is the monthly contribution ($290).
- is the monthly interest rate (annual rate divided by 12).
- is the number of months (years × 12).
We need to solve for , the number of months, and then convert it to years by dividing by 12.
Step-by-step solution:
- Future Value (FV): $2,100,000.
- Monthly contribution (P): $290.
- APR (Annual Percentage Rate): 10.1%, so monthly rate .
- Set up the equation and solve for .
Let me calculate this.It seems there was an issue in calculating the solution for the equation. Let me recheck the setup and recalculate. I'll proceed with a different approach to ensure accuracy.It seems like I can’t do more advanced data analysis right now. Please try again later.
If you'd like, I can explain the formula in detail so you can compute it manually, or help you with any other question!
Here are some questions you might consider:
- Would you like to calculate the future value with a different monthly contribution?
- How does changing the interest rate affect the time to reach your retirement goal?
- What if the contributions are made annually instead of monthly?
- How would the time change if the retirement goal increased to $2.5 million?
- What happens if the APR drops to 8%?
Tip: Compounding more frequently can significantly affect the growth of investments over time!
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Math Problem Analysis
Mathematical Concepts
Finance
Compound Interest
Annuities
Formulas
Future Value of Annuity: FV = P × [(1 + r)^n - 1] / r
Theorems
Compound Interest Theorem
Suitable Grade Level
College/Advanced High School
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