Question

We are considering the effects of starting early or late to save for retirement. Assume that each account considered has an APR of 6% compounded monthly.

Against expert advice, you begin your retirement program at age 40. You plan to retire at the age of 65. What monthly contributions do you need to make to save up a nest egg of $167,599.63? (Round your answer to the nearest cent.)

Answer 1

this investment is ordinary annuity .

equation to find future value of ordinary annuity is

P is monthly payment .

n is total number of payment . if investment is for t years , n= 12t

r is interest rate in decimal per month . if Apr is given , then r= Apr/1200 .

for this investment , we need 167599.63 in 25 years (40 to 65) . so future value= 167599 and n=12*25=300 .

here Apr is 6 . so r=6/1200= 0.005

apply these values to equation

so he need to contribute 241.85 in each month to attain 167599.63