Question

You would like to have enough money saved to receive $150,000 per year perpetuity after retirement so that you and your family can lead a good life. How much would you need to save in your retirement fund to achieve this goal

Answer 1

Answer:

$2,500,000

Explanation:

The computation of the saving amount is shown below

The Present value of a perpetuity is

= Annual cash flows ÷ interest rate

= $150,000 ÷ 0.06

= $2,500,000

By dividing the annual cash flows from the rate of interest we can get the present value of a perpetuity and the same is to be considered

We simply applied the above formula so that the correct value could come

Answer 2

The amount you would need to save  in your retirement fund to achieve this goal is $2,500,000.

Present value:

Using this formula

Present value =Annual cash flows per year ÷ Interest rate

Where:

Annual cash flows per year=$150,000

Interest rate=10% or 0.10

Let plug in the formula

Annual cash flows per year = $150,000 ÷ 0.06

Annual cash flows per year = $2,500,000

Inconclusion the amount you would need to save  in your retirement fund to achieve this goal is $2,500,000.

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