SOLUTION: Avi expects to retire in 12 years. Beginning one month after his retirement he would like to receive $500 per month for 20 years. How much must he deposit into a fund today to be a

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Question 1207354: Avi expects to retire in 12 years. Beginning one month after his retirement he would like to receive $500 per month for 20 years. How much must he deposit into a fund today to be able to do so if the rate of interest on the deposit is 6% compounded monthly?
Answer by Theo(13342) About Me  (Show Source):
You can put this solution on YOUR website!
the calculator at https://arachnoid.com/finance/index.html can help solve this.

first you have to find the present value of those payments for 20 years, starting 12 years from now.

the present value of those payments becomes the future value for what you have to invest today to equal that amount in 12 years.

here are the results of using that calculator.








to get the present value of the 500 at the end of each month for 240 months, inputs are:

present value = 0
future value = 0
payment each month = 500
interest rate per month = 6% / 12 = .5%
number of months = 240
payments are made at the end of each month.

click on pv and calculator tells you that the present value of those payments is equal to 69,790.39.

that's how much you would need to invest in 12 years so that you can receive 500 at the end of each month for the next 20 years.

that becomes the future value that you want to find how much you have to invest to day to have that much to invest in 12 years.

use the same calculator.
inputs are:

present value = 0
future value = 69790.39
interest rate = 6% / 12 = .5% per month
payments are 0.
payments made at the end or beginning of each month do not apply.
number of time periods = 12 * 12 = 144 months.

click on pv and the calculator tells you that you have to invest 34,031.63 today so that you can have 69790.39 12 years from now, that will give you 500 at the end of each month for the next 20 years.