Question

When you graduate college at the age of 20, you want to start saving up for retirement. If your investment pays a fixed APR of 8.5% and you want to have $500,000 when you retire in 45 years, how much would you need to deposit, at the beginning of each month, to reach this goal?

a.
$79.53
c.
$81.98
b.
$80.13
d.
$82.65

Answer 1

Explanation:

Since payments are at the BEGINNING of the month, use formula for Annuities Due....see formula below ( I don't think anyone REMEMBERS these formulas....just look them up)

FV = future value ( $ 500 000) C = monthly deposit = ?

i = decimal interest per period (.085 / 12 months)

n = periods (45 *12) ( for monthly periods)

Plugging in the values :

$ 500 000 = C [ (1+i)^n -1 ] / i * ( 1 + i)

500 000 = C [ (1+.085/12)^(45*12) -1] / ( .085/12) * ( 1 + .085/12) solve for C = $ 79.53