P 4-35 (similar to) Question Help * You are saving for retirement. To live comfo

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P 4-35 (similar to) Question Help * You are saving for retirement. To live comfortably, you decide you will need to save $1 million by the time you are 65. Today is your 33rd birthday, and you decide, starting today and continuing on every birthday up to and including your 65th birthday, that you will put the same amount into a savings account. If the interest rate is 9%, how much must you set aside each year to make sure that you will have $1 million in the account on your 65th birthday? The amount to deposit each year is $ . (Round to the nearest dollar.)

Explanation / Answer

4-35)

Amount set aside each year (P) (FVAD×r)÷((1+r)×[(1+r)^n-1]) Here, 1 Interest rate per annum 9.00% 2 Number of years                                                                            33 3 Number of compoundings per per annum                                                                              1 4 = 1÷3 Interest rate per period ( r) 9.00% 5 = 2×3 Number of periods (n) 33 Future value of annuity due (FVAD) $                                                         1,000,000 Amount set aside each year (P) $                                                            5,103 (1000000×9%)÷((1+9%)×((1+9%)^33-1))

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