Question

Assume a nest egg "goal" size at t = 34 is $3,484,060. Also assume that you will save money in an investment that earns 5% per year until t = 34, to reach your goal. You will make your first savings payment (into the investment) in one year (CF1). You will grow your annual payments by 1.5% per year. You will make 34 annual payments. How big must your first savings payment be, to reach your goal? Round to the nearest dollar.

Answer 1

Future Value of goal to reach = $3484,060

Calculating the First paymnet to accumulate Future Value using FV of Growing annuity formula:-

Where, C= First Payments

r = Periodic Interest rate = 5%

g = growth rate of payment = 1.5%

n= no of periods = 34

Future Value = $3,484,060

C = $33,926.04

So, big must your first savings payment be, to reach your goal is $33,926

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