Question

Suppose you want to have $500,000 for retirement in 30 years. Your account earns 5% interest. How much would you need to deposit in the account each month?

Answer 1

Explanation:

I will use the equation for an annuity due....this assumes you make payments at the BEGINNING of the month rather than at the END of the month of an ordinary annuity..... the Formula is below

FV = 500 000 C = monthly deposit = ?

i = decimal interest per PERIOD = .05/ 12 months

n = periods = 30 yr x 12 months/ year = 360

Plugging in the values:

500 000 = C [ (1 + .05/12)^360 - 1 ] / ( .05/12) * ( 1 + .05/12)

solve this for C to find C = $ 598.28

If this answer is incorrect, then the assumption is monthly deposits are made at the END of the month ( the question does not say)...this would be an ordinary annuity ..this equation is below too and results in C = $ 600.77