Certified Financial Planner (CFP) Exam 2025 – 400 Free Practice Questions to Pass the Exam

Question: 1 / 505

Sam Peterson is looking to have an additional $24,000 annual income after retirement. At an interest rate of 8%, how much does he need to invest?

$192,800

$240,000

$277,835

$300,000

To determine how much Sam Peterson needs to invest to achieve an additional annual income of $24,000 after retirement at an interest rate of 8%, we can utilize the formula for calculating the present value of an annuity. The desired annual income can be viewed as a series of cash flows, which he will receive each year during retirement.

The formula for the present value (PV) of an annuity is:

PV = PMT × [(1 - (1 + r)^-n) / r]

Where:

- PMT is the annual payment (in this case, $24,000).

- r is the interest rate (8% or 0.08).

- n is the number of years in retirement. However, if we assume that Sam plans to withdraw indefinitely (for example, considering the funds will last as long as he needs them), we can simplify the formula to the case of a perpetuity.

For a perpetuity, the formula simplifies to:

PV = PMT / r

In Sam's case:

PV = $24,000 / 0.08 = $300,000

Thus, Sam would need to invest $300,000 today to receive an additional $24,000 annually at an 8

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