Question

A) How much should you invest each month in order to have $700,000 if your rate of return is 2.1% compounded monthly and you want to achieve your goal in 40 years?

B) How much interest will you earn?

C) How much should you invest each month in order to have $700,000 if you want to achieve your goal in 20 years?

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

Answer 1

(A) Compound Interest for principal

Future value of a series

A - compound interest for principal+future value of a series =$ 700,000

P - the initial principal amount = to be find out

PMT=the monthly payment =to be find out

r - annual interest rate = 2.1% = 0.021

t - time factor = 40

n- number of times that interest is compounded per unit t   = 12.

Here let us consider PMT = P

Hence the amount to be invested each month = $ 928.933.

(B). Amount invested per month = $ 928.933

Amount invested for 40 months = $ 928.933 X40 = $ 37,157.32

Interest = 700,000 - 37,157.32 = $ 662,842.68

(C).

Let t = 20

Hence the amount to be invested each month = $ 2,337.493.

(D)

Let t = 10 and P = $ 2,337.493

Savings after 10 years = $ 314,706.032.