Suppose you deposit $2,688.00 into an account today. In 14.00 years the account is worth $3,748.00. The account earned ____% per year.
Today is Derek’s 25th birthday. Derek has been advised that he needs to have $2,656,763.00 in his retirement account the day he turns 65. He estimates his retirement account will pay 10.00% interest. Assume he chooses not to deposit anything today. Rather he chooses to make annual deposits into the retirement account starting on his 28.00th birthday and ending on his 65th birthday. How much must those deposits be?
Future value= $3,748
Present value= $2,688
Time= 14 years
The question is solved by calculating the yield to maturity.
The yield to maturity is calculated by entering the below in a financial calculator:
Press the CPT key and I/Y to compute the yield to maturity.
The value obtained is 2.4029.
Therefore, the account earned 2.40% per year.
Future value= $2,656,763
Time= 65 years - 28 years = 37 years
Yield to maturity= 10%
Enter the below in a financial calculator to compute the amount of annual deposit:
Press the CPT key and PMT to compute the amount of annual deposit.
The value obtained is 8,049.83.
Hence, Derek must deposit $8,049.83 every year to have $2,656,763.
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