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Imagine that your goal is to retire 34 years from today with \$1,000,000$1,000,000 in savings. Assuming that you currently (i.e., today) have \$5,000$5,000 in savings, what rate of return must you earn on that savings to hit your goal? (Hint: Solve your future value formula for the discount rate, RR) *Make sure to input all percentage answers as numeric values without symbols, and use four decimal places of precision. For example, if the answer is 6%, then enter 0.0600.

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Answer:

Present value after 34years = 1000000

Cash flow at present= 5000

Using

PV= CF(1+R)^t

1000000=5000(1+R)^34

R=1.169-1

R=0.168(16.8%)

Rate of return must you earn on that savings to hit your goal is 0.168, at the present value of $1000000, this can be calculated as follows

formula for calculating rate of return =

PV= CF(1+R) ^t

Wherein,

PV is Present value after 34years = 1000000

CF is Cash flow at present= 5000

R (rate of return) =?

T, that is time is 34 years

Therefore, with the help of given numbers the rate of return can be calculated as follows:

1000000=5000(1+R) ^34

R=1.169-1

R=0.168(16.8%)

Therefore, an individual with the present value of $1000000 and present cash flow of $5000 can earn a rate of return at 0.168 after 34 years

Learn more about discounted rate of return here:

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