If Naomi invests in a stock portfolio, her returns for 10 or more years will average 10%-12%. Naomi realizes that the stock market has higher returns because it is a more risky investment than a savings account or a CD. She wants her calculations to be conservative so she decides to use 8% to calculate possible stock market earnings. How much will she need to invest annually to accumulate a million dollars in the stock market?

Answer 1

1000,000 = P (1 + r/n) ^ n-1 / r / n
1000,000 = P (1+ 0.08/30/0.08/30)^30 -1
1000,000= PV (1.083171739 -1/0.00266666666) ^ 30 -1
1000,000= PV (1.083171739 – 1/ 0.00266666666)
1000,000= PV (0.083171739/0.0026666666)
PV = $32,062.17

Answer 2

To accumulate a million dollars, Naomi will need to invest $32,062.17 annually in the stock market.