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Homework answers / question archive / Amanda, age 25, currently has $10,000 in her savings account

Amanda, age 25, currently has $10,000 in her savings account

Finance

Amanda, age 25, currently has $10,000 in her savings account. She figures that she can save $20,000 per year at the start of each year (starting one year from now) indefinitely. She thinks that she can earn an after-tax return of 8% on her investments. She wants to have $1,000,000 at which point she will retire. How long will it take her to achieve her goal?

a) 19.6 years

b) 20.4 years

c) 24.7 years

d) 26.1 years 

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We can calculate the number of years by using the following formula in excel:-

=nper(rate,-pmt,-pv,fv)

Here,

Nper = Number of years

Rate = 8%

Pmt = $20,000

PV = $10,000

FV = $1,000,000

Substituting the values in formula:

= nper(8%,-20000,-10000,1000000)

= 20.4 years

Hence, the correct option is b) 20.4 years

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