Question

In: Finance

Use excel and please show both formulas and numbers. Answer this: Now if I were investing...

Use excel and please show both formulas and numbers.

Answer this: Now if I were investing my $1200 a year at 12% with no children and I win the lottery at year 30 and win $1,000,000 cash, how much money can I blow today (at year 30) and still have the $2,000,000 when I retire at year 40.

not sure but it might be a continuation of - If I want to invest $1200 a year for 20 years and then stop investing for 10 years, to pay for my slacker child to get a doctorate, how much will I need to invest a year in my final 10 years of work to get my $2,000,000 to make me really happy at 12% interest?

Solutions

Expert Solution

Part 1:

Here nper (period)=10, rate=12%, PMT=$1200 and FV(future Value)= 2000000

So, need to invest additional $637166.21 today and $1200 every end of the year to get $2mn when you retire at year 40.

Hence you can blow (1,000,000-637166.21)=$362833.79 today.

Part 2:

Value of investment $1200 every year after 20 year= $86462.93

Value of $86462.93 after 10 year @12%= 86462.93*1.12^10=$268540.73

So, here FV=2000000, PV=-268540.73, rate 12%, nper=10

So, you need to invest $66440.87 per year in the last 10 year to get $2000000 at the end of total 40 year.


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