You are saving for retirement. To live comfortably, you decide you will need to
ID: 2797332 • Letter: Y
Question
You are saving for retirement. To live comfortably, you decide you will need to save $ 2$2 million by the time you are 6565. Today is your 27 th27th birthday, and you decide, starting today and continuing on every birthday up to and including your 65 th65th birthday, that you will put the same amount into a savings account. If the interest rate is 4 %4%, how much must you set aside each year to make sure that you will have $ 2$2 million in the account on your 65 th65th birthday? The amount to deposit each year is $nothing. (Round to the nearest dollar.) You are saving for retirement. To live comfortably, you decide you will need to save $ 2$2 million by the time you are 6565. Today is your 27 th27th birthday, and you decide, starting today and continuing on every birthday up to and including your 65 th65th birthday, that you will put the same amount into a savings account. If the interest rate is 4 %4%, how much must you set aside each year to make sure that you will have $ 2$2 million in the account on your 65 th65th birthday? You are saving for retirement. To live comfortably, you decide you will need to save $ 2$2 million by the time you are 6565. Today is your 27 th27th birthday, and you decide, starting today and continuing on every birthday up to and including your 65 th65th birthday, that you will put the same amount into a savings account. If the interest rate is 4 %4%, how much must you set aside each year to make sure that you will have $ 2$2 million in the account on your 65 th65th birthday? You are saving for retirement. To live comfortably, you decide you will need to save $ 2$2 million by the time you are 6565. Today is your 27 th27th birthday, and you decide, starting today and continuing on every birthday up to and including your 65 th65th birthday, that you will put the same amount into a savings account. If the interest rate is 4 %4%, how much must you set aside each year to make sure that you will have $ 2$2 million in the account on your 65 th65th birthday? $ 2$2 6565. 27 th27th 65 th65th 4 %4%, $ 2$2 65 th65th The amount to deposit each year is $nothing. (Round to the nearest dollar.) The amount to deposit each year is $nothing. (Round to the nearest dollar.) The amount to deposit each year is $nothing. (Round to the nearest dollar.) $nothing.Explanation / Answer
We have:
Future Value = 2 Million
No. Of periods = 65 - 27 + 1 = 39 (As this is a question of Annuity Due)
Rate of Interest = 4%
we need to calculate the yearly contribution (That is P)
The formula for Future Value of Annuity Due is given by:
FV = (1 + r ) * P { (1 + r )n - 1 } / r
2000000 = 1.04 * P { 1.0439 - 1 } / 0.04
2000000 = 1.04 * P { 3.62} / 0.04
Thus we get P = 21, 271 Dollars
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