Question 1194565: Suppose you want to have $300,000 for retirement in 20 years. Your account earns 9% annual interest compounded monthly.
a) How much would you need to deposit in the account at the end of each month?
Answer by ikleyn(52778)   (Show Source):
You can put this solution on YOUR website! .
Suppose you want to have $300,000 for retirement in 20 years. Your account earns 9% annual interest compounded monthly.
a) How much would you need to deposit in the account at the end of each month?
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It is a classic Ordinary Annuity saving plan. The general formula is
FV =  ,
where FV is the future value of the account; P is the monthly payment (deposit); r is the monthly percentage yield
presented as a decimal; n is the number of deposits (= the number of years multiplied by 12, in this case).
From this formula, you get for the monthly payment
P =  . (1)
Under the given conditions, FV = $300,000; r = 0.09/12; n = 20*12. So, according to the formula (1), you get
for the monthly payment
P =  = $449.18.
Answer. The necessary monthly deposit value is $449.18.
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On Ordinary Annuity saving plans, see the lessons
- Ordinary Annuity saving plans and geometric progressions
- Solved problems on Ordinary Annuity saving plans
in this site.
The lessons contain EVERYTHING you need to know about this subject, in clear and compact form.
When you learn from these lessons, you will be able to do similar calculations in semi-automatic mode.
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