Question

Today, you turn 21. Your birthday wish is that you will be a millionaire by your 40th birthday. In an attempt to reach this goal, you decide to save $75 a day, every day, until you turn 40. You open an investment account and deposit your first $75 today. What rate of return must you earn to achieve your goal? Note: Ignore Leap Years. Use TVM function on financial calculator to solve problem (N, I/Y, PV, PMT, FV)

Answer 1

Number of year remaining = 20 - 21 = 19

Number of periods = 19 * 365 = 6,935

Keys to use in a financial calculator:

N 6935

PV 0

PMT -75

FV 1,000,000

CPT I/Y

Your I/Y will be 0.017172% which is a daily rate.

To convert it to an annual rate, multiply it by 365 = 0.017172% * 365 = 6.27%

Or you can set the calculator to daily compounding an solve for I/Y:

Finding I/Y by setting the rate for daily compounding:

2nd I/Y 365

FV 1,000,000

PMT -75

N 6935

PV 0

CPT I/Y

You will directly get 6.27%