Question

Suppose you want to have $800,000 for retirement in 30 years. Your account earns 7% interest.

a) How much would you need to deposit in the account each month?

b) How much interest will you earn?

Answer 1

a.Information provided:

Future value= $800,000

Time= 30 years*12 = 360 months

Yield to maturity= 7%/12 = 0.5833% per month

Enter the below in a financial calculator to calculate the amount of monthly payment:

FV= 800,000

I/Y= 0.5833

N= 360

Press the CPT key and PMT to compute the amount of monthly payment.

The value obtained is 5,322.42.

Therefore, the amount of monthly payment is $5,322.42.

b.Interest earned :

= ($5,322.42*360) - $800,000

= $1,916,071.19 - $800,000

= $1,116,071.19.