Question

1) If you retire in 40 years, you want to have $2.5 million saved. The interest rate is 7%. If you start saving today, how much must you save every year in order to achieve your goal? **Can you show me using excel?

2) You get a 60 month car loan for $15,000. If the interest rate quoted is 4%, but you decide to pay $750 per month instead, how much faster will you be able to pay off the loan? **Again, showing the excel functions would be appreciated!

Thanks!

Answer 1

Answer 1)

Tenure (NPER) = 40 years; Interest Rate (RATE) = 7% and the Future Value (FV) = 2500000

Using Excel Formula, PMT(RATE,NPER,PV-FV,1) = $ 11703.60

Starting today (Beginning of the year), an amount of $ 11703.60 is required to be saved in order to achieve the goal.

Answer 2)

Present Value (PV) = $ 15000 Rate of Interest (RATE) = 4% Payment (PMT)= $ 750 per month

Using Excel Formula, NPER(RATE/12,-PMT,PV,FV,0) = 20.73 Periods or Months;

If an amount of $ 750 is paid, the loan can be paid off faster by (60 - 20.73) = 39.27 months;