You want to have $1 million in real dollars in an investment account when you re

Question

You want to have $1 million in real dollars in an investment account when you retire in 30 years. The nominal return on your investment is 9 percent and the inflation rate is 4 percent. What real amount must you deposit each year to achieve your goal

You want to have $1 million in real dollars in an investment account when you retire in 30 years. The nominal return on your investment is 9 percent and the inflation rate is 4 percent. What real amount must you deposit each year to achieve your goal

Explanation / Answer

Hi,

Please find the answer as follows;

Step 1: Calculate Real Rate of Return:

(1+.09) = (1+r)*(1+.04)

r = 4.807692%

Step 2: Calculate Real Amount as follows:

PMT = ?

Rate = 4.807692%

PV = 0

FV = 1000000

Nper = 30

Amount to be deposited each year = PMT(rate,nper,pv,fv) = PMT(4.807692%,30,0,1000000) = 15555.49

Answer is 15555.49

Thanks.

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