Question

You want to be a millionaire when you retire in 40 years. a. How much do you have to save each month if you can earn an annual return of 12 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. How much do you have to save each month if you wait 10 years before you begin your deposits? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. How much do you have to save each month if you wait 20 years before you begin your deposits? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Answer 1

Here we use pmt formulae in excel to find the monthly deposit we need to make to become a millionaire when we retire

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

a)rate=12%/12=1%(since monthly)

nper=40*12

pv=0

fv=10^6

type=0

=PMT(12%/12,40*12,0,10^6,0)=85

b)rate=12%/12=1%(since monthly)

nper=30*12(since after 10 years deposits made so remaining is 40-10=30)

pv=0

fv=10^6

type=0

=PMT(12%/12,30*12,0,10^6,0)=286.13

c)rate=12%/12=1%(since monthly)

nper=20*12(since after 20 years deposits made so remaining is 40-20=20)

pv=0

fv=10^6

type=0

=PMT(12%/12,20*12,0,10^6,0)=1010.86