Question

In: Finance

Suppose you want to retire after working for 40 years with $2 million saved for retirement....

  1. Suppose you want to retire after working for 40 years with $2 million saved for retirement. Calculate how much you need to save each month if your retirement savings is in an account that grows at 3%, 6%, and 9% interest annually. (three answers, one for each rate.) Show your work.

Solutions

Expert Solution

When interest rate is 3%:

We are given the following information:

Annual payment PMT To be calculated
rate of interest r 3.00%
number of years n 40
Monthly Compounding T 12
Future value FV $    2,000,000.00

We need to solve the following equation to arrive at the required FV

So the monthly deposit should be $2,159.69 rounded to 2 decimal places to achieve 2 million after 40 years

Excel formula would be:=PMT(0.03/12,12*40,0,200000)

When interest rate is 6%:

We are given the following information:

Annual payment PMT To be calculated
rate of interest r 6.00%
number of years n 40
Monthly Compounding T 12
Future value FV $    2,000,000.00

We need to solve the following equation to arrive at the required FV

So the monthly deposit should be $1,004.27 rounded to 2 decimal places to achieve 2 million after 40 years

Excel formula would be:=PMT(0.06/12,12*40,0,200000)

When interest rate is 9%:

We are given the following information:

Annual payment PMT To be calculated
rate of interest r 9.00%
number of years n 40
Monthly Compounding T 12
Future value FV $    2,000,000.00

We need to solve the following equation to arrive at the required FV

So the monthly deposit should be $427.23 rounded to 2 decimal places to achieve 2 million after 40 years

Excel formula would be:=PMT(0.09/12,12*40,0,200000)

jeff jeffy answered 2 years ago
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