Question

2a)Andrea, a self-employed individual, wishes to accumulate a retirement fund of $900,000. How much should she deposit each month into her retirement account, which pays interest at a rate of 5.5%/year compounded monthly, to reach her goal upon retirement 20 yr from now? (Round your answer to the nearest cent.)

2b)Joe secured a loan of $11,000 five years ago from a bank for use toward his college expenses. The bank charges interest at the rate of 4%/year compounded monthly on his loan. Now that he has graduated from college, Joe wishes to repay the loan by amortizing it through monthly payments over 12 yr at the same interest rate. Find the size of the monthly payments he will be required to make. (Round your answer to the nearest cent.)

Answer 1

2a.

FV = $900,000

rate = 5.5%/12 = 0.46%

nper = 20*12 = 248

PV = 0

Using PMT function in excel, she should deposit $2,066 per month.

2b.

First let us calculate the amount accrued today, that is at the end of 5 years:

PV = $11,000

rate = 4% / 12 = 0.33%

nper = 5*12 = 60

PMT = $0

Using FV function in Excel, the current accrued amount is $13,431.

Now let us calculate the monthly amount to be paid

PV = $13,431

FV = $0

rate = 0.33%

nper = 12 * 12 = 144

Using PMT function in excel, he should pay $117.6 per month.