Question

Bonnie has decided to begin a retirement savings program where she will contribute to an account that will accumulate tax free throughout her working life. She expects to retire in exactly9 years from today, and her goal is to have accumulated the amount of $600000 when she reaches her future retirement age.

In order to meet her goal, she will begin making MONTHLY contributions to a special account devoted to the retirement goal. Contributions to this account will begin one month from today, and she will continue placing equal monthly amounts into her retirement account for the next 9 years. What minimum amount needs to be placed in her account at the end of each month so that she'll reach her goal if the annual interest rate is 9%.

Answer 1

Future Value amount to be accumulated in 9 years = $600,000

In order to meet the goal, you will make month end deposit into an account for 9 years.

Calculating the monthly contribution using Future vlaue of Ordinay annuity formula:-

Where, C= Periodic Contribution

r = Periodic Interest rate = 9%/12 = 0.75%

n= no of periods = 9 years*12 = 108

C = $3625.75

So, minimum amount needs to be placed in her account at the end of each month is $3625.75