You want to have the equivalent of $700,000 (in terms of today's spending power) when you retire in 30 years. Assume a 3% rate of annual inflation. If you can earn 10% annually, how much do you have to invest per year in order to have your full amount of money needed at retirement? (A) 21230.00 (B) 85,651.00 (C) 7856.00 (D) 10,329.00

The correct answer is D: $10,329

Explanation:

Giving the following information:

You want to have the equivalent of $700,000 (in terms of today's spending power) when you retire in 30 years. Assume a 3% rate of annual inflation. The interest rate is 10% annual.

First, we need to determine how much is $700,000 in 30 years.

FV = PV * (1+i) ^n

FV = 700000 * (1.03^30) = $1,699,083.73

Now, we can calculate the annual payment required using the following formula:

FV = {A*[ (1+i) ^n-1]}/i

A = annual payment

Isolating A:

A = (FV*i) / {[ (1+i) ^n]-1}

A = (1,699,083.73 * 0.10) / [ (1.10^30) - 1] = $10329