Question

Sara wants to have $600,000 in her savings account when she retires. How much must she put in the account now, if the account pays a fixed interest rate of 8%, to ensure that she has $600,000 in 20 years?

Answer 1

Answer:

Total value attained in 20 years = Simple interest of 20 years on the Principal amount + Principal amount invested

Simple interest = Principal amount invested * Interest rate * Time Period

Simple interest earned during 20 years =  X * 0.08 i.e. 8% * 20 ( Assume principal invested as X)

= 1.6 X

Hence,

$ 600,000 = 1.6 X + X

2.6 X = 600,000

X = 600,000 / 2.6  

= $ 230,769 (Approx.)

Hence, amount Sara should put in the Savings Accounts now =  $ 230,769 (Approx.)

Explanation:

Refer to the answer.