MJSProblem 4-34 Growing Annuity Payments You want to accumulate $2 millions by y

Question

MJSProblem 4-34 Growing Annuity Payments You want to accumulate $2 millions by your retirement date, which is 25 years from now. You will make 25 deposits in your bank, with the first occurring today. The bank pays 6.78% interest, compounded annually. You expect to get an annual raise of 2%, which will offset inflation, and you will let the amount you deposit each year also grow by 2% (i.e., your second deposit will be 2% greater than your first, the third will be 2% greater than the second, etc.). How much must your first deposit be to meet your goal? Round your answer to the nearest cent.

Explanation / Answer

First payment = $2,000,000 * (9.41% - 5%) / [(1 + 9.41%)25 - (1 + 5%)25] * 1 / (1 + 9.41%)

= $13,247.39

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