Question

Joe Smith has asked your financial advice. He would like to have $2,500,000 in his investment...

Joe Smith has asked your financial advice. He would like to have $2,500,000 in his investment account 25 years from now. He expects a stable 6% return and has $550,000 now. How much does he need to add to his account annually to achieve his goal?

Homework Answers

Answer #1

Current saving = $550,000
Desired saving = $2,500,000
Interest rate = 6%
Time to retirement = 25 years

Let monthly saving be $x

$550,000 * 1.06^25 + $x * 1.06^24 + $x * 1.06^23 + .... + $x * 1.06 + $x = $2,500,000
$550,000 * 1.06^25 + $x * (1.06^25 - 1) / 0.06 = $2,500,000
$550,000 * 4.29187 + $x * 54.86451 = $2,500,000
$2,360,528.50 + $x * 54.86451 = $2,500,000
$x * 54.86451 = $139,471.50
$x = $2,542.11

So, Joe should save $2,542.11 each month to achieve his retirement goal.

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