Question

suppose you are 21 now and you decide you want to become a millionaire when you turn 65 years old.

A) To reach your goal, how much should you invest today, assuming you can earn an average annual rate of return of 10% from investing in the stock market?

B) To reach your goal, how much should you invest each year, assuming you can earn an average annual rate of return of 10% from investing in the stock market?

I need the exact formula that I would use in excel to produce the answer and separately with the numbers included

Answer 1

A)

Years remaining to become 65 years old = 65-21 = 44

Use PV function in excel

Rate = 10%

nper = 44 (since there are 44 annual time periods)

pmt = 0 ( since there are no intermediate cash-flows)

FV = 1000000 ( Since after 44 years, 1 million is expected)

we get PV = 15091.13

Amount of investment needed today	Formula
($15,091.13)	PV(10%,44,0,1000000)

B)

Use PMT function in excel

Rate = 10%

nper = 44 (since there are 44 annual time periods)

PV = 0 ( since there are no cash-flows initially)

FV = 1000000 ( Since after 44 years, 1 million is expected)

we get PMT = 1532.24

Amount of investment needed per year	Formula
($1,532.24)	PMT(10%,44,0,1000000)