When you finally retire, you want to be able to draw from an account an annual salary of $100,000 for 20 years. Approximately how much should be in your account that has an APR of 5% when you retire, such that you can draw an annual salary of $100,000? Assume an ordinary annuity.

Use the present value formula for an ordinary annuity: PV = payment × [1 − (1 + rate)^−years] ÷ rate. With annual withdrawals of $100,000, a 5% rate, and 20 years, PV ≈ $100,000 × 12.462 = $1,246,200. That is approximately $1,250,000, choice b.

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