You want to be a millionaire when you retire in 40 years. How much do you have t

ID: 2639720 • Letter: Y

Question

You want to be a millionaire when you retire in 40 years. How much do you have to save each month if you can earn an 11.9 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 $

Explanation / Answer

Amount targeted at the time of retirement = $1,000,000.

annual rate of interest = 11.9%

Amount to be saved each month is arrived by using the formula in excel FV.

Let $1 be the amount deposited every month at 11.9% interest rate per annum for 40 years, the maturity amount =

FV(.119/12,480,1,1) = $11,513.08

If $1 is deposited every month for forty years at an interest rate of 11.9% per annum, maturity amount is $11,513.08 to obtain $1,000,000 as a maturity amount one has to deposit = $1,000,000/$11,513.08 = $86.8577 rounded to $86.86.

Answer for Question no 2:

If the person has started depositing after 15 years the amount he needs to deposit for the rest of 25 years to attain $1,000,000 @11.9% per annum is obtained as follows:

$1 deposited every month for 25 years at 11.9% interest rate, yields a maturity amount of FV(.119/12,300,1,1) = $1,865.15.

To obtain $1,000,000 as maturity value one had to deposit per month =$1,000,000/$1,865.15 = $536.15

Answer for Question 3:

If the person has started depositing after 25 years the amount he needs to deposit for the rest of 15 years to attain $1,000,000 @11.9% per annum is obtained as follows:

$1 deposited every month for 15 years at 11.9% interest rate yields a maturity amount of FV(.119/12,180,1,1) = $500.77.

To obtain $1,000,000 as maturity value one had to deposit per month =$1,000,000/$500.77 = $1,996.92

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