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).

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Expert Solution

We are required to calculate the monthly annuity payment for 40 years.

Given information

Future value at the time of retirement	1,000,000.00
Interest rate	6%
Compounding frequency --> monthly	12
Rate per compounding period (Interest rate / compounding frequency)	0.50%
No. of years	40
No. of compounding periods (no. of years x compounding frequency)	480

PV annuity factor --->

Formula --> (1-(1+monthly interest rate)^-no. of compounding periods) / monthly interest rate

---> (1-(1+0.5%)^-480)/0.5%

181.75

Monthly annuity payment (Future value of investment / PV annuity factor)

5,502

Therefore monthly saving amount to be made is $ 5,502 for 40 years.

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Thanks

jeff jeffy answered 1 year ago

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