1. You want to be a millionaire when you retire in 35 years. How much do you hav

Question

1. You want to be a millionaire when you retire in 35 years.

How much do you have to save each month if you can earn an 11.5 percent annual return? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

  Savings per month

$   

How much do you have to save each month if you wait 15 years before you begin your deposits? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

  Savings per month

$   

How much do you have to save each month if you wait 25 years before you begin your deposits? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

  Savings per month

$   

2.

Toadies, Inc., has identified an investment project with the following cash flows.

Year

Cash Flow

1

$

1,575

2

1,695

3

1,780

4

1,830

If the discount rate is 7 percent, what is the future value of the cash flows in year 4? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

  Future value

$   

If the discount rate is 12 percent, what is the future value of the cash flows in year 4? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

  Future value

$   

If the discount rate is 23 percent, what is the future value of the cash flows in year 4? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

  Future value

$   

1. You want to be a millionaire when you retire in 35 years.

Explanation / Answer

1) FV = $1,000,000 is final amount of savings at the start of retirement.

N = 35 * 12 = 420 months

I/Y = 11.5% compounded monthly = 0.9583%

PMT = ?

Solving for PMT which is the monthly savings = $177.74 which need to be made to be a millionaire after 35 years.

2) We need to wait 15 years before the first deposit and hence we need to accumulate $1M in 20 years.

FV = $1,000,000 is final amount of savings at the start of retirement.

N = 20 * 12 = 240 months

I/Y = 11.5% compounded monthly = 0.9583%

PMT = ?

Solving for PMT which is the monthly savings = $1,080.96 which need to be made to be a millionaire after 20 years.

3) We need to wait 25 years before the first deposit and hence we need to accumulate $1M in 10 years.

FV = $1,000,000 is final amount of savings at the start of retirement.

N = 10 * 12 = 120 months

I/Y = 11.5% compounded monthly = 0.9583%

PMT = ?

Solving for PMT which is the monthly savings = $4,476.21 which need to be made to be a millionaire after 10 years.

P.S = The following questions have been solved with the help of a financial calculator.

4) If the discount rate is 7 percent, the future value of the cash flows will be:- $7,604.65

5) If the discount rate is 12 percent, the future value of the cash flows will be:- $8,162.57

6) If the discount rate is 23 percent, the future value of the cash flows will be:- $9,514.63

I hope my solution solves your query.

Regards.

Related Questions

Navigate

• Browse (All)
• Browse 1
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.