Monica has decided that she wants to build enough retirement wealth that, if inv

Question

Monica has decided that she wants to build enough retirement wealth that, if invested at 10 percent per year, will provide her with $3,700 of monthly income for 25 years. To date, she has saved nothing, but she still has 30 years until she retires.

How much money does she need to contribute per month to reach her goal?

Monica has decided that she wants to build enough retirement wealth that, if invested at 10 percent per year, will provide her with $3,700 of monthly income for 25 years. To date, she has saved nothing, but she still has 30 years until she retires.

Explanation / Answer

The question requires us to find the PV of a perpetuity which can be found out by the following formula:

PV of a Perpetuity = PMT / (I/Y)

PV = $135 / 0.085

PV = $1,623.53

I hope my solution solves your query.

Regards.

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