Question

You want to be a millionaire when you retire in 40 years.

a. How much do you have to save each month if you can earn an annual return of 9.7 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
b. How much do you have to save each month if you wait 10 years before you begin your deposits? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.). How much do you have to save each month if you wait 20 years before you begin your deposits? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Answer 1

a. FV = $1,000,000

rate = 9.7%

n = 40 periods

FVIFA = [(1 + 0.097)⁴⁰ - 1] / 0.097 = 407.9960231

annual savings = $1,000,000 / 407.9960231 = $2,451.00

b. FV = $1,000,000

rate = 9.7%

n = 30 periods

FVIFA = [(1 + 0.097)³⁰ - 1] / 0.097 = 155.4306295

annual savings = $1,000,000 / 155.4306295 = $6,433.74

FV = $1,000,000

rate = 9.7%

n = 20 periods

FVIFA = [(1 + 0.097)²⁰ - 1] / 0.097 = 55.35978429

annual savings = $1,000,000 / 55.35978429 = $18,063.65