Assuming a conservative interest rate of 5.5%, how much would you need to save each year to reach $110,000 in 14 years? Round to the nearest $100. (Hint: Search online for a Future Value Calculator)
Assuming a conservative interest rate of 5.5%, how much would you need to save each year to reach $110,000 in 14 years? Round to the nearest $100. (Hint: Search online for a Future Value Calculator)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
Need help understanding the answer it says the answer is 5400 and that doesn't make sense to me. Also i have no idea what the 80-1 part of this formula is supposed to represent. It is talking about
![### Financial Literacy Lesson: Calculating Annual Savings for Future Goals
**Scenario:**
Susie poses a question: "Assuming a conservative interest rate of 5.5%, how much would you need to save each year to reach $110,000 in 14 years? Round to the nearest $100. (Hint: Search online for a Future Value Calculator)"
Jamie Lee Jackson incorrectly answers with $0.
**Explanation and Correct Calculation:**
The text indicates that Jamie and Ross made an incorrect attempt to solve the problem. To determine how much they need to save per year if invested at 37%, they ended up with:
- **Savings per year**: $39
- **Interest rate**: 37%
The formula used is illustrated as follows:
**College Savings Goal** × **Interest Rate**
---------------------------------------------
(1 + **Interest Rate**)^(**Years**) - 1
Plugging in the values:
\[
= \frac{35 \times 37\%}{(1 + 37\%)^3 - 1} = $39
\]
Finally, the **correct answer** for Susie’s initial scenario, properly calculated for the given conditions, is:
\[
\text{Correct Answer: } \$5,400
\]
This means Susie needs to save $5,400 each year at an interest rate of 5.5% to reach her goal of $110,000 in 14 years.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fbf238986-8ffc-4b99-b1ca-533b8fe8c6d3%2Fa2200ccd-8479-4999-9a54-d4517284d4c3%2Forkkl6_processed.png&w=3840&q=75)
Transcribed Image Text:### Financial Literacy Lesson: Calculating Annual Savings for Future Goals
**Scenario:**
Susie poses a question: "Assuming a conservative interest rate of 5.5%, how much would you need to save each year to reach $110,000 in 14 years? Round to the nearest $100. (Hint: Search online for a Future Value Calculator)"
Jamie Lee Jackson incorrectly answers with $0.
**Explanation and Correct Calculation:**
The text indicates that Jamie and Ross made an incorrect attempt to solve the problem. To determine how much they need to save per year if invested at 37%, they ended up with:
- **Savings per year**: $39
- **Interest rate**: 37%
The formula used is illustrated as follows:
**College Savings Goal** × **Interest Rate**
---------------------------------------------
(1 + **Interest Rate**)^(**Years**) - 1
Plugging in the values:
\[
= \frac{35 \times 37\%}{(1 + 37\%)^3 - 1} = $39
\]
Finally, the **correct answer** for Susie’s initial scenario, properly calculated for the given conditions, is:
\[
\text{Correct Answer: } \$5,400
\]
This means Susie needs to save $5,400 each year at an interest rate of 5.5% to reach her goal of $110,000 in 14 years.
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