Question

You have decided that you want to be a millionaire when you retire in 44 years. if you can earn an annual return of 11.4 percent, how much do you have to invest today?

Answer 1

To become a millionaire ($1,000,000) in 44 years, one needs to make the following investment today, given an annual return of 11.14 percent:

$1,000,000 / ((1.1114)^44)$1,000,000 / 104.3031$9,587.44

Answer 2

The answer is: $8,650.71 (rounded to 2 decimal places)

Step-by-step explanation:

The time value of money principle indicates that there is an opportunity cost attached to future consumption. This cost is the foregone purchasing power of the dollar value today. In order to encourage individuals to invest rather than consumer their savings today, interest is offered as an incentive or 'return' for the foregone purchasing power by individuals who choose to save. This interest rate is referred to as a discount rate and is considered to be the cost of lending money or investing money today in lieu of future payment.

In order to calculate the amount to be invested today, the present value of a future anticipated monetary value must be calculated using the discounting rate(r). The formula is as follows:

Present value = Future Value/(1 + r)^t where t is the number of periods.

Future value is $1,000,000, t is 44 years and r is 11.4%

= $1,000,000/(1+0.114)^44

= $8,650.707009