Question

You want to be a millionaire when you retire in 40 years. you can earn a 12.5 percent annual return How much do you have to save each month if you can earn an annual return of 9.7 percent

Answer 1

Answer:

Instructions are below.

Explanation:

Giving the following information:

You want to be a millionaire when you retire in 40 years. y

We have two different investment opportunities. One earning 12.5% compounded annual and the other 9.7% compounded monthly.

For both investments, we need to use the following formula:

FV= {A*[(1+i)^n-1]}/i

A= annual deposit

Isolating A:

A= (FV*i)/{[(1+i)^n]-1}

First option:

A= (1,000,000*0.125)/ [(1.125^40)-1]

A= 1,134.31

Second option:

i= 0.097/12= 0.008083

n= 40*12= 480

A= monthly deposit

A= (1,000,000*0.008083)/ [(1.008083^480)-1]

A= 173.21