Question

How much should you invest each month in order to have $800,000 if your rate of return is 5.9% compounded monthly and you want to achieve your goal in 40 years?

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How much interest will you earn?

$

How much should you invest each month in order to have $800,000 if you want to achieve your goal in 20 years?

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If you deposit the amount you need to achieve your goal in 20 years, how much will your savings be worth after 10 years?

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Answer 1

i). Future Value of periodic deposit amount = $800,000

Calculating the Periodic monthly depsoit:-

Where, C= Periodic Payments

r = Periodic Interest rate = 5.9%/12 = 0.491666%

n= no of periods = 40years*12 = 480

C = $ 412.74

So, you should Invest each month is $412.74

ii). Total Interest earned =Future Value - (No of Payments*Period Paymnets)

= $ 800,000 - ($412.74*480)

= $ 601,884.8

iii). Future Value of periodic deposit amount = $800,000

Now, the goal is to achieve in 20 years

Calculating the Periodic monthly depsoit:-

Where, C= Periodic Payments

r = Periodic Interest rate = 5.9%/12 = 0.491666%

n= no of periods = 20years*12 = 240

C = $ 1752.06

So, you should Invest each month is $1752.06

iv). Now, calculating the future value of the 20 year periodic monthly deposits in 10 years:-

Where, C= Periodic Payments = $1752.06

r = Periodic Interest rate = 5.9%/12 = 0.491666%

n= no of periods = 10years*12 = 120

FV = $ 285,573.54

So, the saving in 10 years will be worth of $ 285,573.54

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