Question

g How much do you need when you retire to provide a $2,500 monthly check that will last for 25 years? Assume that your savings can earn 0.5% a month. $402,766.67 $414,008.24 $388,017.16 $361,526.14

Answer 1

Answer:

The correct answer is $388,017.16

Explanation:

The assumption is that you have to save x money, that generates 0.5% a month, and that provide $2,500 monthly. The savings at second month will be (x-2500) * 1.005. At third month, the saving will be (((x - 2500) * 1.005)-2500)* 1.005. This continues until the twelfth month of the twenty fifth year. The short form of this calculations is $C * (1-(1+i)x^{-t})/ i$, where C is the monthly provision (2500), i is the interest (0.5%) and t is the time (12 months per year, 25 years, 300 months). The result is $2,500 * (1-(1.005)x^{-300} )/0.005 = 388,017.16$.