Introduction
When a person earns interest from a retirement account, one is paid money for keeping their cash deposited in the savings account. The interest is calculated by multiplying the money in the savings account, referred to as the principal amount, by the interest rate expressed as a decimal by one year. In this case, after saving for 30 years, I expect to earn $130,000 per annum interest calculated at an interest rate of 4.7% from the money that will have accumulated. However, the task is not to find interest but the amount of money accumulated after 30 years. Following is a list of vital information about the question.
Important Information about the Question
- P = Principal amount (account balance accumulated in 30 years)
- N = Number of the period (one year)
- I = Interest amount earned in one year
- R = Interest rate expressed as a decimal
A simple interest in a savings account is calculated by multiplying the account balance by the interest rate by the period the money is in the account. In this question, I will calculate the amount of money I expect the account to have accumulated within 30 years, earning $130,000 each year as interest. The formula used to calculate interest = P x R x N. This formula makes it easy to find the formula for calculating the principal amount by simply dividing each side by (R x N).
Therefore, the formula will be P =
Question to be answered
I am finding the amount of money the account needs to have accumulated in 30 years.
My Reasonable Answer (1 point)
If my account earns $130,000 per year at an interest rate of about 4%, I expect the principal amount to be $3,250,000. The value is estimated when the principal amount is calculated within one year. I have made this guess because the interest amount represents 4% of the principal amount. Therefore, to get the Principal amount, one needs to find the value 100% represents. By using the cross-multiplication method
If 4% = $130,000
100% = P
P =
P = $3,250,000
The solution to the question
- P =? (Principal amount)
- N = 1 year (period)
- R = 4.7% (annual interest rate)
- I = $130,000 (interest earned in one year)
Using the formula: P =
and replacing the values,
P =
P = 2,765,957.45
Therefore, the amount of money that my retirement account would have accumulated in my retirement account in 30 years will be $2,765,957.45.
Although my guess answer was reasonable, it was an estimate of what the price will fall. The guess answer did not agree with my final answer because I used an interest rate of 4% instead of 4.7%. My solution is sound because I have replaced the right values in the formula. I have also confirmed my answer using an online calculator. Therefore, I am confident this is the correct answer to the question.
Conclusion
In conclusion, since I will receive an interest amount of $130,000 per annum at an interest rate of 4.7%, the question required me to find the principal amount. After solving the question, I found the principal amount to be $2,765,957.45. Therefore, this is the amount my retirement account needs to have accumulated in 30 years.