Question

Earl Ezekiel wants to retire in San Diego when he is 65 years old. Earl is now 49. He believes he will need $540,000 to retire comfortably. To date, Earl has set aside no retirement money. Assume Earl gets 8% interest compounded semiannually. How much must Earl invest today to meet his $540,000 goal?

Answer 1

Earl Ezekiel wants to retire in San Diego when he is 65 years old.

Earl is now 49.

He needs $540,000 to retire comfortably.

Rate of Interest is 8% compounded semi annually.

We need to calculate present value of $540,000.

Present Value is given by :

Future Value / ( 1 + i ) ^ n

where i = rate of interest/ 2, as amount is compounded semi annually = .08/2 = .04

n = no of years * 2

= (65-49) * 2

= 32

= 540,000/ (1 + .04)^32

= 540,000/3.508059

= 153931.28

Earl must invest $ 153,931 today to meet his $540,000 goal at the age of 65.

Hope it helps.

Thank you..!!