Question

In: Finance

1. How much money do you need to save each year to be a millionaire by...

1. How much money do you need to save each year to be a millionaire by the time you are 65 if you can earn an interest rate of 8% and you start saving when you are 20 years old? Please use two decimals rounded up/down.

2. How much money do you need to save each year to be a millionaire by the time you are 65 if you can earn an interest rate of 8% and you start saving when you were born? Please use two decimals rounded up/down.

Expert Solution

Q-1)

Future Value to accumulate when yoou are 65 = $1,000,000

You will start saving from age 20 and will make 45 equal annual payments. Since, the paymnet starts at age 20 we will use Present Value of annuity due formula to calculate the amount need to be saved each year:-

Where, C= Periodic Payments

r = Periodic Interest rate = 8%

n= no of periods = 45

C = $2395.63

So, the amount need to be saved each year is $2395.63

Q-2)

Future Value to accumulate when you are 65 = $1,000,000

You will start saving from age you are born and will make 65 equal annual payments. Since, the paymnet starts at age you are born we will use Present Value of annuity due formula to calculate the amount need to be saved each year:-

Where, C= Periodic Payments

r = Periodic Interest rate = 8%

n= no of periods = 65

C = $501.25

So, the amount need to be saved each year is $501.25

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jeff jeffy answered 1 year ago

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