To retire at a decent age and move to Hawaii, an engineer plans to trust her account to an investment firm that promises to make a real rate of return of 10% per year when the inflation rate is 4% per year. If the account currently is valued at $422,000 and she wants to retire in 15 years, how much (in then-current dollars) will have to be in the account for the realized rate of return to be a real 10% per year? Also, write a single-cell spreadsheet function to display the answer.
What will be an ideal response?
Account will have to grow at rate of if
if = 0.10 + 0.04 + (0.10)(0.04) = 0.144 (14.4%)
Amount required: F = 422,000(F/P,14.4%,15)
= 422,000(7.52299)
= $3,174,701
Function: = - FV(0.1+0.04+0.1*0.04,15,,422000) displays $3,174,701
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