Question

Andrea, a self-employed individual, wishes to accumulate a retirement fund of $500,000. How much should she deposit each month into her retirement account, which pays interest at a rate of 5.5%/year compounded monthly, to reach her goal upon retirement 25 years from now

Answer 1

$778.82

Step-by-step explanation:

Given:

Amount to be accumulated in retirement fund which is future value (FV) = $500,000

Interest rate (Rate) = 5.5% annually or 5.5 / 12 = 0.4583%

Time period (nper) = 25 years or 25×12 = 300 periods

Monthly deposit need to be computed (PMT). which can be calculated using spreadsheet function =pmt(rate,nper,PV,FV)

=pmt(0.004583,300,0,500000)

Monthly payment is computed as $778.82

Note: PMT is negative as it is a cash outflow.