Question

You want to have $5 million in real dollars in an account when you retire in 20 years.

The nominal return on your investment is 10 percent and the inflation rate is 3 percent.
What is the real amount you must deposit each year to achieve your goal?

Answer 1

The real amount that you must deposit each year to achieve your goal is:

= $54,662.78.

Step-by-step explanation:

a) Data and Calculations:

Required amount in real dollars = $5 million

Nominal return on investment = 10%

Inflation rate = 3%

Real return on investment = 13% (10 + 3)

From an online financial calculator:

N (# of periods) 20

I/Y (Interest per year) 13

PV (Present Value) 0

FV (Future Value) 5000000

Results

PMT = $54,662.78

Sum of all periodic payments $1,093,255.61

Total Interest $3,906,744.3