Question

How much money do you need to invest every year for 20 years at 8% interest in order to have $500,000? In other words, what is the present value of a compounding interest.

Answer 1

The amount of deposit to be made every year can be calculated with the use of PMT (Payment) function/formula of EXCEL/Financial Calculator. The function/formula for PMT is PMT(Rate,Nper,PV,FV) where Rate = Interest Rate, Nper = Period, PV = Present Value (if any) and FV = Future Value.

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Here, Rate = 8%, Nper = 20, PV = 0 and FV = $500,000

Using these values in the above function/formula for PMT, we get,

Amount of Money to be Invested Every Year = PMT(8%,20,0,500000) = $10,926.10 (answer)

The amount of money to be invested every year for 20 years at 8% interest in order to have $500,000 is $10,926.10.