You want to have $1,000,000 when you retire in 30 years. You expect to earn 12%...

You want to have $1,000,000 when you retire in 30 years. You expect to earn 12% compounded monthly over the entire 30-year period. How much extra money per month must you deposit if you choose to fund using an ordinary annuity technique rather than an annuity due technique?

Solutions

Expert Solution

- Future Value in 30 years in retirement = $1,000,000

Calculating the monthly periodic deposit using FV of ordinary annuity formula:-

Where, C= Periodic Deposits

r = Periodic Interest rate = 12%/12 = 1%

n= no of periods = 30 years*12 = 360

Future Value = $1,000,000

C = $286.13

So, Monthly deposit in ordinary annuity is $286.13

- Calculating the monthly periodic deposit using FV of annuity due formula:-

Where, C= Periodic Deposits

r = Periodic Interest rate = 12%/12 = 1%

n= no of periods = 30 years*12 = 360

Future Value = $1,000,000

C = $283.29

So, Monthly deposit in annuity due is $283.29

- So, extra money per month must you deposit if you choose to fund using an ordinary annuity technique rather than an annuity due technique = $286.13 - $283.29

= $2.84

If you need any clarification, you can ask in comments.

If you like my answer, then please up-vote as it will be motivating

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

Assume that you are 30 years old and expect to retire when you reach 65. If...

Assume that you are 30 years old and expect to retire when you reach 65. If you were to retire today, you would like a fixed (pretax) income of 60,000 per year (in addition to the social security) for a period of 15 years ( your approximate life expectancy at age 65). However you realized that price inflation will erode the purchasing power of the dollar over the next 35 years and you want to adjust your desired retirement income...

You want to have $3 million in real dollars in an account when you retire in 30 years

You want to have $3 million in real dollars in an account when you retire in 30 years. The nominal return on your investment is 13 percent and the inflation rate is 3.7 percent. What real amount must you deposit each year to achieve your goal? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Deposit amount = _______

Assume that you are 30 years old today and expect to retire when you reach age...

Assume that you are 30 years old today and expect to retire when you reach age 65. If you were to retire today, you would like a fixed (pretax) income of $60,000 per year (in addition to Social Security) for a period of 15 years (your approximate life expectancy at age 65). However, you realize that price inflation will erode the purchasing power of the dollar over the next 35 years and you want to adjust your desired retirement income...

You’ve decided that you want $1,000,000 in your investment account when you retire 25 years from...

You’ve decided that you want $1,000,000 in your investment account when you retire 25 years from today. If you already have $100,000 in the account, and it earns a nominal rate of 8% per year, compounded quarterly, how much money will you have to deposit into that account per year in order to reach your goal?

You would like to retire in 40 years with $1,000,000. Assume you could earn 6% on...

You would like to retire in 40 years with $1,000,000. Assume you could earn 6% on your investment. How much would you have to save each month? (Assume end-of period payments).

You have decided that you want to be a millionaire when you retire in 44 years....

You have decided that you want to be a millionaire when you retire in 44 years. 1. .If you can earn an annual return of 11.22 percent, how much do you have to invest today? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) 2. .What if you can earn an annual return of 5.61 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) 1. amount to...

You wish to retire in 12 years, at which time you want to have accumulated enough...

You wish to retire in 12 years, at which time you want to have accumulated enough money to receive an annual annuity of $15,000 for 17 years after retirement. During the period before retirement you can earn 11 percent annually, while after retirement you can earn 13 percent on your money. What annual contributions to the retirement fund will allow you to receive the $15,000 annuity?

1- ) You want to have $3 million when you retire in 40 years. If you...

1- ) You want to have $3 million when you retire in 40 years. If you can earn 12% per year, how much do you need to deposit on a monthly basis if the first payment is made in one month? 2- ) What if the first payment is made today? 3- ) You are considering ABC’s preferred stock that is expected to pay a quarterly dividend of $1.00 forever. If your desired return is 10% per year, how much...

If you want to have an $500,000 amount (F) when you retire in 35 years, what...

If you want to have an $500,000 amount (F) when you retire in 35 years, what equal series amount (A) do you need to invest each year with a 5% interest rate? (Hint, use (A/F, i, n)) Same question as 1, but how much is the equal series amount (A) if you had procrastinated for 10 years and now have only 25 years to accumulate the $500,000 desired at retirement? Same question as 2, but the interest rate is 7%,...

You are 30 years old and want to retire at the age of age 65 and...

You are 30 years old and want to retire at the age of age 65 and expect to live another 25 years. On the day you retire, you want to have $900,000 in your retirement savings account. a) If you invest monthly starting one month from today and your investment earns 6.0 percent per year, How much money do you need to invest every month until you retire? b) You're retired with $900,000 and you have 25 more years. You...

Subjects