You would like to have $5 million dollars when you retire at age 65. You are 25 years old and you want to make your first savings payment immediately.

You would like to have $5 million dollars when you retire at age 65. You are 25 years old and you want to make your first savings payment immediately. You have not saved any money for your retirement as of yet. Assume interest rate is 7%, how much money must you set aside per year until and including your 65^th birthday?

Expert Solution

Amount of money required at the end of 65 years for retirement is $5 million

Current age is 25 years

Number of years to invest money is 40 years

Since we need to make first saving immediately we need to make an annuity due

This is a case of annuity due that is at the end we need an amount if $5 million

The formula for future value of annuity is as follows.

Future value of annuity due = (P*((1+r)ⁿ - 1)/r)(1+r)

P = Equalised annual payment

n = number of periods

r = rate on interest

50,00,000 = P*((1.07)⁴⁰-1)/0.07) * 1.07

P = 50,00,000/213.6096 = $23407.19

Hence the amount of money to be set aside is $23407.19

jeff jeffy answered 2 years ago

You would like to have $5 million dollars when you retire at age 65. You are 25 years old and you want to make your first savings payment immediately.

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You would like to have $5 million dollars when you retire at age 65. You are 25 years old and you want to make your first savings payment immediately.

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