How much do you have to save each month if you can earn an annual return of 11.1
ID: 2731823 • Letter: H
Question
How much do you have to save each month if you can earn an annual return of 11.1 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
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 answer to 2 decimal places, e.g., 32.16.)
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 answer to 2 decimal places, e.g., 32.16.)
You want to be a millionaire when you retire in 45 years.Explanation / Answer
Answer: Here we are finding the annuity payment necessary to achieve the same FV. The interest rate given is an 11.1 percent APR, with monthly deposits. We must make sure to use the number of months in the equation. So, using the FVA equation:
Starting today:
FVA =C[{[1 + (0.111/12)]540– 1} / (0.111/12)]
C= $1,000,000 /15494.156 = $64.54
Answer: Starting in 15 years:
FVA =C[{[1 + (0.111/12)]360– 1} / (0.111/12)]
C= $1,000,000 / 2,866.3727 = $348.87
Answer:
Starting in 25 years:
FVA =C[{[1 + (0.111/12)]240– 1} / (0.111/12)]
C= $1,000,000 / 877.173= $1140.03
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