Question

# Today is Derek’s 25th birthday. Derek has been advised that he needs to have \$2,570,420.00 in...

Today is Derek’s 25th birthday. Derek has been advised that he needs to have \$2,570,420.00 in his retirement account the day he turns 65. He estimates his retirement account will pay 5.00% interest. Assume he chooses not to deposit anything today. Rather he chooses to make annual deposits into the retirement account starting on his 30.00th birthday and ending on his 65th birthday. How much must those deposits be?

 Total deposits = 65 -30 = 35 We can calculate annual deposit amount by using following formula Future Value of an Ordinary Annuity c= Cash Flow C i= Interest Rate 5.00% n= Number Of Periods 35 Future Value of an Ordinary Annuity = C*[(1+i)^n-1]/i Where, C= Cash Flow per period i = interest rate per period n=number of period 2570420= C[ (1+0.05)^35 -1] /0.05 2570420= C[ (1.05)^35 -1] /0.05 2570420= C[ (5.516 -1] /0.05] C = 28458.94 Annual Deposit = \$28458.94

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