Question

You want to retire has a millionaire. How much do you need to put away each month if:

• You use common stocks and have an average return of 10%?
• You use corporate bonds and have an average return of 6%?
• You use government bonds and have an average return of 4%?
• You put your money in a CD at 2.5% interest rate?

(use your own age. If you are over 45, solve for saving a $100,000.)

Answer 1

a.

Amount		$1,000,000
Average Return		10%
Months		12
Years		23
Monthly Payment		$938.48

Find monthly data as:
Rate = 10% / 12 =		0.0083333
Years (Assume 44 years) = (Age 62- Age 44)/12 = 23 years
Interest payment is zero and NPER is 23*12 =
Plug in the data as		PMT(0.8333333%, 276, 0, -1000000)

 

b.

Average Return		6%
Monthly Payment		$1,688.47

Use all above data except interest rate
New Rate is 6%/12 =		0.005
PMT(0.005,276,0,-1000000)

 

c.

Average Return		4%
Monthly Payment		$2,214.17

Use all above data except interest rate
New Rate is 4%/12 =		0.0033333
PMT(0.003333,276,0,-1000000)

 

d.

Average Return		2.50%
Monthly Payment		$2,684.47

Use all above data except interest rate
New Rate is 2.5%/12 =		0.0020833
PMT(0.0020833,276,0,-1000000)

PMT(0.0020833,276,0,-1000000)