Answer:
The correct answer is C.
Explanation:
Giving the following information:
Jack would like to have $1.25M to retire in 35 years. He will get $375,000 the day he retires.
He can deposit funds in a money market account which earns 6.5% interest per year, and he would like to make yearly deposits.
<u>First, we need to calculate the final value required:</u>
FV= 1,250,000 - 375,000= $875,000
Now, using the following variation of the final value formula, we can calculate the yearly deposit:
FV= {A*[(1+i)^n-1]}/i
A= annual deposit
Isolating A:
A= (FV*i)/{[(1+i)^n]-1}
FV= 875,000
n= 35
i= 0.065
A= (875,000*0.065) / [(1.065^35) - 1]= $7,054.48
The annual deposit is $7,054.48.
