Question

2. Fiona opened a retirement account that has an annual yield of 6%. She is planning on retiring in 20 years.

How much must she deposit into that account each year so that she can have a total of $600,000 by the time
she retires?

Answer 1

PMT = $52,023.26

Explanation:

To calculate how much Fiona must deposit into her retirement account each year, we can use the formula for annuity payments:

PMT = PV x (r / (1 - (1 + r)^(-n)))

Where:

PMT is the periodic payment

PV is the present value (or desired future value) of the annuity

r is the interest rate per period (in this case, the annual yield of 6% divided by the number of periods per year, which is 1)

n is the total number of periods (in this case, 20 years)

We know that Fiona wants to have a total of $600,000 in her retirement account by the time she retires, so PV = $600,000. We also know that the interest rate per period is 6% / 1 = 0.06, and the total number of periods is 20.

Plugging these values into the formula, we get:

PMT = $600,000 x (0.06 / (1 - (1 + 0.06)^(-20)))

PMT = $600,000 x (0.06 / (1 - 0.312))

PMT = $600,000 x (0.06 / 0.688)

PMT = $52,023.26

Therefore, Fiona would need to deposit approximately $52,023.26 into her retirement account each year for the next 20 years to have a total of $600,000 by the time she retires, assuming the annual yield remains constant at 6%.