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12 September, 03:54

Finding the required interest rate: Your parents will retire in 18 years. They currently have $250,000, and they think they will need $1,000,000 at retirement. What annual interest rate must they earn to reach their goal, assuming they don't save any additional funds? excel formula

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  1. 12 September, 06:33
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    i = 8% annual compunded

    Explanation:

    Giving the following information:

    Your parents will retire in 18 years. They currently have $250,000, and they think they will need $1,000,000 at retirement.

    We need to calculate the interest rate required to reach the $1 million goal in 18 years without any additional deposit.

    FV = PV * (1+i) ^n

    Isolating i:

    i = [ (FV/PV) ^ (1/n) ] - 1

    i = [ (1,00,000/250,000) ^ (1/18) ] - 1 = 0.08

    i = 8% annual compunded
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