Question

Your daughter is born today and you want her to be a millionaire by the time she is 35 years old. open an investment account that promises to pay 12% per year. How much money must you deposit today so your daughter will have $1,000,000 by her 35th birthday?

Answer 1

Here the single investment made today will be $1,000,000 after 35 years. The formula for future value of single cash flow = A (1+i)ⁿ, Where " i " is the interest rate = 12% or 0.12, the compounding period is not specified, it is presumed that compounding is done annually, "n" is the number of years = 35, "A" is the amoun t invested today.

Here we know the future value but we need to find out the amount to be invested today to get it back @ $1,000,000.

So $1,000,000 = A (1.12)³⁵,

$1,000,000 = A X 52.7996195791075,

A = $1,000,000/ 52.7996195791075,

A = $18,939.5303975958,

Rounded to 2 decimal places = $18,939.53, this amount will be $ 1,000,000 after 35 years

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