Question

You want to save $1,000,000 for retirement, which will be 40 years from today. How much would you have to set aside each year to fund the retirement if you made 40 equal annual deposits beginning one year from today? Assume interest rates of 6, 8, 10, and 12 percent.

Answer 1

Future value of annuity=Annuity[(1+rate)^time period-1]/rate]

1.

1,000,000=Annuity[(1.06)^40-1]/0.06

1,000,000=Annuity*154.7619656

Annuity=1,000,000/154.7619656

=$6461.54

2.

1,000,000=Annuity[(1.08)^40-1]/0.08

1,000,000=Annuity*259.0565187

Annuity=1,000,000/259.0565187

=$3860.16

3.

1,000,000=Annuity[(1.1)^40-1]/0.1

1,000,000=Annuity*442.5925557

Annuity=1,000,000/442.5925557

=$2259.41

4.

1,000,000=Annuity[(1.12)^40-1]/0.12

1,000,000=Annuity*767.0914203

Annuity=1,000,000/767.0914203

=$1303.63(Approx).