QUESTION 36 Unit 4: A couple wants to retire with $1 million in their 401[K] in
ID: 2753369 • Letter: Q
Question
QUESTION 36
Unit 4: A couple wants to retire with $1 million in their 401[K] in 30 years. They decide to put invest $12,000 a year in the 401(K) and can earn 6% on all investments. Will they reach their goal?
No; they will be about $640,000 short.
No; they will be about $51,302 short.
Yes; they will be about $3,000 over.
Yes; they will be about $12,000 over.
No; they will be about $640,000 short.
No; they will be about $51,302 short.
Yes; they will be about $3,000 over.
Yes; they will be about $12,000 over.
Explanation / Answer
Formula for future value of Annuity :
FV= A [ (1+k)n-1/k]
FV = Future annuity value
A = periodical investment =12,000
K=interest rate=6%
N=periods=30 years
FV= 12000[(1.06)^30-1]/0.06 =12,000*79.0583=$948,698
So the future value of the 401(k) saving will be $948,698.
Therefore the shortfall will be $51,302