Question

You want to have a million dollars in the bank when you retire. You think you can save $5 000 this year, and increase that by $100 every subsequent year, in a bank that offers you 5% interest. If you make your first deposit in a year's time, how many years will it be from now before you can retire? Select one: O a. 35 O b. 40 O c. 50 O d. 30 0 0 0 0

Answer 1

ANSWER:

I = 5%

N = ?

Yearly savings = $5,000

Increase in savings = $100

pw = yearly savings(p/a,i,n) + increase in savings(p/g,i,n)

fw(p/f,i,n) = yearly savings(p/a,i,n) + increase in savings(p/g,i,n)

1,000,000(p/f,5%,n) = 5,000(p/a,5%,n) + 100(p/g,5%,n)

Looking into compounding factor tables we get that n is between 42 and 43 years as at n = 42 ,the fv is slightly less then $1,000,000 while at n = 43 , it is slightly more then $1,000,000

Please ask your teacher about the options as at the end of 43rd year , the account comes to $1,000,000 and so with the options given the answer is closest to option e that is 45 years but please re confirm about the options with your teacher.