Question

Professor G wants to have $700,000 in his retirement account when he retires in 10 years. He earns 3.6% on his investments guaranteed. How much must he invest at the beginning of each month if he now already has $240,000 already saved up?

Answer 1

Monthly Interest rate, RATE # of monthly deposits required, NPER Initial lumpsum deposit, PV Target maturity value at the end, FV Monthly installment type, TYPE Equal monthly deposit required 0.30% [3.60% / 12 --> Annual interest rate is converted into monthly interest rate] 120 [10 years x 12 --> As there will be 12 monthly deposits per year for 10 years] $240,000 [Already had on hand] $700,000 1 = 0 if installments paid at the end of each month; 1 if installments paid at the beginning of each month $2,462.94 [Ref: NOTE] NOTE: к Equal monthly deposit required is calculated using EXCEL FUNCTION PMT(rate,nper,pv,fv,type) where rate=0.30%; nper=120; pv=240000; fv=-700000; type=1; pv is positive as it denotes cash outflow; fv is negative as it denotes cash inflow; type=1 as installments are paid at the beginning of each month itself. C D E F G H I J 1 Monthly Interest rate, RATE =3.6%/12 (3.60% / 12 --> Annual interest rate is converted into monthly interest rate] 2 # of monthly deposits required, NPEF =10*12 [10 years x 12 --> As there will be 12 monthly deposits per year for 10 years] 3 Initial lumpsum deposit, PV $240,000 (Already had on hand] 4 Target maturity value at the end, FV $700,000 5 Monthly installment type, TYPE 1 = 0 if installments paid at the end of each month; 1 if installments paid at the beginning of each month 6 Equal monthly deposit required =PMT(B1,B2,B3,-B4,B5) [Ref: NOTE]