Question
In: Finance
Your objective is to save $1 million by retirement age of 65 years. The annual interest...
Your objective is to save $1 million by retirement age of 65 years. The annual interest rate is 6%. Assume monthly compounding. A. How much per month would a 25 yr. old person need to save? B. How much per month would a 40 yr. old person need to save?
Solutions
Expert Solution
| answer a) | Given that - | |||||||||
| Current age | 25 | |||||||||
| retirement age | 65 | |||||||||
| Working age | 40 | |||||||||
| number of month =40*12 | 480 | |||||||||
| interest rate | 6.00% | compounded monthly | ||||||||
| interest rate per month | 0.50% | |||||||||
| Future value | 1,000,000 | |||||||||
| We can calculate monthly investment required to pay amount using financial calculator | ||||||||||
| Put in financial calculator - | ||||||||||
| I= | 0.50% | |||||||||
| PV= | 0 | |||||||||
| N= | 480 | |||||||||
| FV= | 1,000,000 | |||||||||
| Solve for PMT = | -502.14 | |||||||||
| Hence, 502 required per month for 480 month to have investment of $1million | ||||||||||
| answer b) | Given that - | |||||||||
| Current age | 40 | |||||||||
| retirement age | 65 | |||||||||
| Working age | 25 | |||||||||
| number of month =25*12 | 300 | |||||||||
| interest rate | 0.06 | compounded monthly | ||||||||
| interest rate per month | 0.005 | |||||||||
| Future value | 1000000 | |||||||||
| We can calculate monthly investment required to pay amount using financial calculator | ||||||||||
| Put in financial calculator - | ||||||||||
| I= | 0.005 | |||||||||
| PV= | 0 | |||||||||
| N= | 300 | |||||||||
| FV= | 1000000 | |||||||||
| Solve for PMT = | -1443.01 | |||||||||
| Hence, 1443 required per month for 300 month to have investment of $1million | ||||||||||
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