Question

You deposit $20,000 in the account now and you add an equal amount $X each year for the next 30 years. In 30 years, there are $675,000 in your account. r=6%. How much did you add at the end of each year over the 30 years?

1. FV of $20,000 30 years from now = $…………

2. Solve for PMT = $ ……………………. that produces that new FV

Answer 1

1. To calculate the FV of $20,000, 30 years from now, use the formula

FV = 20000 (1 + 0.06)^30

FV = 114,869.82

Thus, the FV or the Future Value of $20,000, 30 years for now, at r = 6% is $114,869.82.

2. To calculate the equal amount that is added each year for the next 30 years, we use the following formula in excel

=pmt (rate, nper, pv, [fv],[type])

where,

rate = 6%

nper = 30

pv = -20000

fv = 675000

type = 0

this formula in excel gives us the value of PMT = $7,085.04 that produces the new FV.