Certified Financial Planner (CFP) Practice Exam 2025 – All-in-One Study Guide for Exam Success!

To determine how much Cathy and John Gonnerman will need to invest at the end of each year to accumulate $350,000 in twelve years, it is essential to adjust the future value of their goal for inflation. The 6% inflation rate means that the purchasing power of money will decrease over time, requiring them to save more to reach their target amount in real terms.

First, the future value of $350,000 needs to be inflated by the 6% rate over twelve years. This is done using the formula for future value adjusted for inflation:

Future Value = Present Value × (1 + inflation rate)^number of years.

Using this formula, we calculate the present value of their goal:

Adjusted target amount = $350,000 / (1 + 0.06)^12 = $350,000 / (1.791) ≈ $195,102.13.

Now that we have determined the inflated target about $195,102.13, the next step is to calculate how much needs to be invested at the end of each year to achieve this amount with a 9% after-tax return. This involves using the formula for the future value of an ordinary annuity:

Future Value = Payment × (((1