Question

You are trying to pay for retirement in 14 years, and currently you have $100,000 in savings account and      $300,000 in stocks. Assume your savings and stock accounts each earn 6% / year compounded monthly. How   much will you need to deposit at the end of each month so that you will have $1,000,000 @ the end of 14 years?

***Please use financial calculator with steps written down***

Answer 1

Question requires estimating the amount of deposit required each month to have $1,000,000 at the end of 14 years. Thus, 'PMT' option to be used in the financial calculator:

FV = Future Value = Amount to have end of 14 years = $1,000,000

N = Number of periods = 14 years * 12 months a year = 168 (since deposit is made monthly, the years is converted to equivalent months)

Start Principal = Initial Deposit / balance available = Value of Savings account + Value of Stock = $100,000+$300,000 = $400,000

I/Y = Interest rate per month = 6% / 12 = 0.50% (since deposit is made monthly, the annual interest of 6% is converted to monthly interest)

PMT made at end of the month (as given in question)

After inputing the above variables, click 'Calculate' to get the following results:

Thus, deposit at the end of each month to have $1,000,000 @ the end of 14 years = $287.42