Question

How much should you invest each month in order to have $400,000 if your rate of return is 2.6% compounded monthly and you want to achieve your goal in 40 years?

$

How much interest will you earn?

$

How much should you invest each month in order to have $400,000 if you want to achieve your goal in 20 years?

$

If you deposit the amount you need to achieve your goal in 20 years, how much will your savings be worth after 10 years?

Answer 1

Solution :- (i)

Interest Rate Per Month = 2.6% / 12 = 0.217%

Total Payment in 40 Years = 40 * 12 = 480

Future Value = $400,000

Monthly Deposit = X

X * FVAF ( 0.217% , 480 ) = $400,000

X * 844.6197 = $400,000

X = $473.586

(ii)

Interest earn = $400,000 - ( 480 * 473.586 ) = $172,678.80

(iii)

If we want to achieve goal in 20 Years , amount need to deposit per month =

Total Payment in 20 Years = 20 * 12 = 240

Future Value = $400,000

Monthly Deposit = X

X * FVAF ( 0.217% , 240 ) = $400,000

X * 315.0279 = $400,000

X = $1,269.73

(iv)

If we deposit $200,000 today Saving after 10 years ( 120 months ) =

= $200,000 * ( 1 + 0.002169 )¹²⁰

= $200,000 * ( 1.2965 )

= $259,314.1

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