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Today is Derek’s 25th birthday. Derek has been advised that he needs to have $3,432,872.00 in...

Today is Derek’s 25th birthday. Derek has been advised that he needs to have $3,432,872.00 in his retirement account the day he turns 65. He estimates his retirement account will pay 6.00% interest. Assume he chooses not to deposit anything today. Rather he chooses to make annual deposits into the retirement account starting on his 28.00th birthday and ending on his 65th birthday. How much must those deposits be?

Solutions

Expert Solution

Given that,

Derek need FV = $3432872 in his account on 65th b'day.

Interest rate r = 6%

He will start depositing from 28th b'day to 65th b'day annually.

So, annual deposits are calculated using FV formula of annuity:

PMT = FV*r/((1+r)^(t) - 1) = 3432872*0.06/((1+0.06)^(65-27) - 1) = $25259.50

So, he must deposit $25259.50 annually in his retirement account.

jeff jeffy answered 2 years ago
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