Question

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If you want to be a millionaire when you retire in 50 years, how much must...

If you want to be a millionaire when you retire in 50 years, how much must you save each month if you can earn a 6% annual rate of return?

what is the effective annual interest rate on the imvestment?

please use formula and show work

Solutions

Expert Solution

Solution:

Given that Future Value, = $1,000,000, Number of years, = 50 and rate of return, = 6%

Since it is compounded monthly, the number of years = 50*12 = 600 and rate of return = 6%/12 = 0.5%

The amount saved is annuity represented by ,

$1,000,000 =

$1,000,000 = (3787.19109)

= $264.05

Hence, you must save $264.05 each month to be a millionaire in 50 years.

---------------------------------------------------------------------------------------------------------------------------------------------------------------------

The effective annual rate of interest, for monthly compounding is

= 1.06168 - 1

= 6.17%

Hence, the effective annual interest rate is 6.17%.

jeff jeffy answered 3 months ago

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