Question

Annuities /assessment You would like to have $550,000 when you retire in 35 years.

You would like to have $550,000 when you retire in 35 years. How much should you invest each quarter if you can earn a rate of 4.8% compounded quarterly?

a) How much should you deposit each quarter?


b) How much total money will you put into the account?


c) How much total interest will you earn?

Answer 1

FV = PMT ([1+I]^N - 1)/I
FV = future value
I = interest
N = number of periods

PART A:
Set FV = $550,000
Set I = 0.048/4 = 0.012
Set N = 35yr×4qtr/yr = 140 qtr
PMT = 550,000×I/([1+I]^N - 1)
PMT = 550,000×0.012/([1.012]^140-1) = $1,530.55
PART B:
$1,530.55 × 140 = 214,277.42
PART C:
550,000 - 214,277.42 = 335,722.58