Question

#22

Derek can deposit $11,000 on each birthday beginning with his 26th and ending with his 65th. What will the rate on the retirement account need to be for him to have $3,000,000 in it when he retires on his 65th birthday?

Answer format: Percentage Round to: 4 decimal places (Example: 9.2434%, % sign required. Will accept decimal format rounded to 6 decimal places (ex: 0.092434))

Answer 1

Information provided:

Future value= $3,000,000

Annual deposit= $11,000

Time= 26 years - 65 years= 39 years

The question is computed by calculating the yield to maturity.

The yield to maturity is calculated by entering the below in a financial calculator:

FV= 3,000,000

PMT= -11,000

N= 39

The question is concerning finding the future value of an annuity due. Annuity due refers to annuity that occurs at the beginning of a period.

This can be solved using a financial calculator by inputting the below into the calculator:

The financial calculator is set in the end mode.  Annuity due is calculated by setting the calculator to the beginning mode (BGN). To do this, press 2^ndBGN 2^ndSET on the Texas BA II Plus calculator.

Press the CPT key and I/Y to compute the yield to maturity.

The value obtained is 8.21.

Therefore, the retirement will have a rate of 8.21%.

In case of any query, kindly comment on the solution.