To solve this problem using a finance calculator, we need to identify the values for N (number of periods), PMT (the amount of each payment), i/y (interest rate), FV (future value), and PV (present value).
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Identify the parameters:
- Future Value (FV): This is the amount needed in the retirement account when Derek turns 65, which is $3,761,489.00.
- Interest Rate (i/y): The annual interest rate is 8.00%, so enter that as 8.
- Present Value (PV): Since Derek does not plan to make any deposits today, the present value is $0 because it's the starting point of the investment.
- Number of Periods (N): Daisy starts making deposits on her 28th birthday until her 65th birthday. That means she will make deposits for the years 28 through 65, which is 65 - 28 = 37 years (N will be 38, since we include the year of the 28th birthday).
- Payment (PMT): This is what we need to solve for.
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Values to input into the calculator:
- N = 38 (the number of deposits made, which is from age 28 to 65)
- PMT = ? (this is what we will solve for)
- i/y = 8 (the annual interest rate)
- PV = 0 (no initial investment today)
- FV = 3,761,489 (the target amount at retirement)
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Using the financial calculator:
- Set N = 38
- Set i/y = 8
- Set PV = 0
- Set FV = 3,761,489
- Then, compute PMT.
At this point, you would use the financial calculator to solve for PMT, which will give you the annual deposit Derek needs to make between his 28th and 65th birthdays to achieve his retirement savings goal of $3,761,489.00, assuming 8% annual interest.