How much money must be invested into an account paying 6 ann

How much money must be invested into an account paying 6% annually, compounded annually, to have $500,000 in 25 years when I retire?

a. Calculate the PV (Present Value) using the “Present Value of $1.00” table in your textbook.

b. Calculate the PV (Present Value) using the formula: PV = FV / (1 +R)^N

c. How much interest did you earn over the life of the investment?

We know that

PV = FV / (1 +R)^N

Where FV = 500000

R = 6 % = 0.06

N = 25 years.

Hence

PV = (500000)/(1+0.06)²⁵ = 500000/(1.06²⁵) = 500000/4.29187071 = 116499

Hence Present value is approximately $116500.

Interest earned over the years would be =FV-PV = 500000-116500 = $383500