Question

You want to accumulate $1,250,000 prior to retirement. If you can earn 10% per yr. and have the next 30 years to save every month, how much would you need to save at the beginning of every month to fulfill your wishes?

Answer 1

Answer :

Using PMT function of Excel we can calculate the amount needed to save at the beginning of each year

=PMT(rate,nper,pv,fv,type)

where rate is the rate of interest per period i.e 10% / 12 = 0.7% ( Divided by 12 as amount deposited monthly)

nper is the number of payments i.e 30 * 12 = 360 ( Multiplied by 12 as amount deposited monthly)

pv is the present value i.e 0

fv is the future value i.e 1250000

type is 1 as payments are made at the beginnig of each month

=PMT(10%/12,360,0,-1250000,1)

Therefore Monthly paymemts to be made is 548.41