Question

You want to be a millionaire.

You will like to accomplish this goal in twenty years.

If you deposit money on a monthly basis and earn 12 percent per year, how much should you deposit every month (assuming the first payment is made at the end of the month)?

Answer 1

The amount is computed as shown below:

Future value = Monthly payment x [ [ (1 + r)ⁿ – 1 ] / r ]

r is computed as follows:

= 12% / 12 (Since the savings are monthly, hence divided by 12)

= 1% or 0.01

n is computed as follows:

= 20 x 12 (Since the savings are monthly, hence multiplied by 12)

= 240

So, the amount will be as follows:

$ 1,000,000 = Monthly deposit x [ [ (1 + 0.01)²⁴⁰ - 1 ] / 0.01]

$ 1,000,000 = Monthly deposit x 989.2553654

Monthly deposit = $ 1,000,000 / 989.2553654

Monthly deposit = $ 1,010.86 Approximately

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