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29 September, 21:58

Sara wants to have $600,000 in her savings account when she retires. How much must she put in the account now, if the account pays a fixed interest rate of 8%, to ensure that she has $600,000 in 20 years?

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  1. 29 September, 23:13
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    Total value attained in 20 years = Simple interest of 20 years on the Principal amount + Principal amount invested

    Simple interest = Principal amount invested * Interest rate * Time Period

    Simple interest earned during 20 years = X * 0.08 i. e. 8% * 20 (Assume principal invested as X)

    = 1.6 X

    Hence,

    $ 600,000 = 1.6 X + X

    2.6 X = 600,000

    X = 600,000 / 2.6

    = $ 230,769 (Approx.)

    Hence, amount Sara should put in the Savings Accounts now = $ 230,769 (Approx.)

    Explanation:

    Refer to the answer.
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