Question

Avery Tag makes an investment today (January 1, 2017). Avery will receive $40,000 every December 31st for the next six years (2017 – 2022). If Avery wants to earn 12% on her investment, what is the most she should invest on January 1, 2017?

Answer 1

Answer: $2,000,000

Explanation: Let X be the amount of Avery's investment. Since she will receive $40,000 every year for the next six years, the most she will earn is
$40,000 × 6 = $240,000.

Since she wants to earn 12% on her investment, her earnings is equal to 12% of X = 0.12X. Since the most she will earn is $240,000,

0.12X ≤ 240,000
X ≤ 240,000 ÷ 0.12 = 2,000,000 (Divide both sides by 0.12)

Hence X ≤ 2,000,000. Therefore, the most amount she should invest is $2,000,000.