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March 24, 2017

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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?

  • business and finance - ,

    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
    periods.

    Plug the calculated values into the given Eq and solve for Po.

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