In: Finance
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).
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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