Mr. Funperson will graduate with an engineering BS degree from USF before his 25
ID: 2768773 • Letter: M
Question
Mr. Funperson will graduate with an engineering BS degree from USF before his 25th birthday, and start his first professional job immediately upon his graduation. Mr. Funperson decides to set up a retirement account and makes his first monthly deposit into the retirement account a month after his 25th birthday. He will continue making these monthly deposits until he retires at the age of 65. Assume that his last monthly deposit will be made on his 65 birthday, and his goal is for his retirement account to reach half a million dollars on his 65 birthday. Further assume an interest rate of 6% per year.
a.) Calculate Mr. Funperson’s monthly deposit if he stops making deposits after his 55th birthday. That is, his last deposit will be made on his 55th birthday.
Explanation / Answer
Required Future value of 30 year Annuity =$500000 Annuity FV formula; FV=A*[(1+k0^n-1]/k A= Monthly deposit required k= ineterest rate =6/12=0.50% per month n=30 years =360 months So , 500,000=A*[1.005^360-1]/0.005 A =497.75 So required monthly deposit= $497.75
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