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What do i enter for PMT,FV, i/y, FV or PV to solve for the question below on a finance calculator.

Today is Derek’s 25th birthday. Derek has been advised that he needs to have $3,220,614.00 in his retirement account the day he turns 65. He estimates his retirement account will pay 7.00% interest. Assume he chooses not to deposit anything today. Rather he chooses to make annual deposits into the retirement account starting on his 28.00th birthday and ending on his 65th birthday. How much must those deposits be?

1 answer

To solve this retirement savings problem, we need to set it up correctly using a financial calculator. The goal is to determine how much Derek should deposit annually (PMT) to reach a future value (FV) of $3,220,614 by the time he turns 65, starting to make those deposits at age 28 and ending them at age 65.

Given:

  • Future Value (FV) = $3,220,614
  • Interest Rate (i/y) = 7% or 0.07
  • Present Value (PV) = $0 (because he is not making any deposits today)
  • Number of deposits (n) = 65 - 28 = 37 years

Input Parameters for the Financial Calculator:

  • FV = 3,220,614: This is the amount Derek wants to have when he retires.
  • PV = 0: There are no initial deposits.
  • i/y = 7: This is the interest rate (as a percentage).
  • n = 37: This is the total number of deposits he will make (from age 28 to age 65).

Finding PMT:

  • To find the amount of annual deposits (PMT), you will need to set your calculator to compute based on these values and then solve for PMT.

Make sure to use the correct functions on your financial calculator:

  1. Input the values for FV, PV, i/y, and n.
  2. Use the "PMT" function to calculate the annual payment.

In summary:

  • PMT = ? (this is what we're solving for)
  • FV = 3,220,614
  • PV = 0
  • i/y = 7
  • n = 37

This will give you the annual deposit amount Derek will need to contribute to his retirement account to reach his goal.