business and finance
posted by maria on .
Ray Long wants to retire in Arizona when he is 70 years
of age. Ray is now 50. He believes he will need $130,000
to retire comfortably. To date, Ray has set aside no
retirement money. Assume Ray gets 14% interest
compounded semiannually. How much must Ray invest
today to meet his $130,000 goal?
P = Po(1+r)^n.
Po = P / (1+r)^n.
P = $130,000 = Principal after 20 yrs.
Po = Initial principal or deposit.
r = (14%/2) / 100% = 0.07 = Semi-annual
% rate expressed as a decimal.
n = 2Comp./yr * 20yrs = 40 Compounding
Plug the calculated values into the given Eq and solve for Po.