You want to have $6 million in real dollars in an account when you retire in 40

ID: 2704756 • Letter: Y

Question

You want to have $6 million in real dollars in an account when you retire in 40 years. The nominal return on your investment is 9 percent and the inflation rate is 5.4 percent.

What real amount must you deposit each year to achieve your goal? (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16))

You want to have $6 million in real dollars in an account when you retire in 40 years. The nominal return on your investment is 9 percent and the inflation rate is 5.4 percent.

Explanation / Answer

Real rate of return is 9% minus 5.4% = 3.6%

Let P = payment to deposit each year (at end of year).

P(1.06^40 - 1) / .036 = 6,000,000.

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You want to have $6 million in real dollars in an account when you retire in 40

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