Question

You have decided that you want to be a millionaire when you retire in 44 years. If you can earn an annual return of 11.14 percent, how much do you have to invest today? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Investment $ What if you can earn an annual return of 5.57 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Investment $

Answer 1

Answer:

At 11.14% interest rate we need to invest    8,650.71  today

At 5.57% interest rate we need to invest 92,090.97 today

Explanation:

We will calculate the present value of 1,000,000 at 11.14% for 44 years

and at 5.57% for 44 years

$\frac{Maturity}{(1 + rate)^{time} } = PV$  

Maturity   1,000,000.00

time   44 years

if rate = 11.4% =  0.114

$\frac{1000000}{(1 + 0.114)^{44} } = PV$  

PV   8,650.71

if rate = 5.57% = 0.0557

$\frac{1000000}{(1 + 0.0557)^{44} } = PV$  

PV   92,090.97