Question

Suppose you waited 10 years to invest in the same retirement fund and have the same $400,000 for retirement at the same 8% interest. What amount will you have to deposit each month to match the value of your annuity?

Answer 1

$7,196.42

Explanation:

Using the compound interest formula to fins the amount after 10years;

A = P(1+r)^n

Principal P = $400,000

Rate r = 8% = 0.08

Time t = 10 years

Substitute

A = 400,000(1+0.08)^10

A = 400,000(1.08)^10

A = 400,000(2.1589)

A = 863,569.99

A ≈ 863,570

Hence the amount after 10 years is $863,570

Monthly deposit = $863,570/120 (10 years is equivalent to 120months)

Monthly deposit = 7,196.42

Therefore he will have to deposit $7,196.42 into his account monthly