Question

e RenmaiRIHg: 00:3053 Submit Quiz This Question: 1 pt 6 of 12 This Quiz: 12 pts possible comfortably, you decide you will need to save $1 million by the time you are 65. Today is your 33rd birthday, and you decide, on every birthday up to and including your 65th birthday, that you will put the same amount into a starting today and continuing 5%, how much must you set aside each year to make sure that you will have $1 million in the account on your 65th birthday? The amount to deposit each year is (Round to the nearest dollar) SAT

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Answer 1

Amount to be saved by age of 65 = 1 million = 1000000

Rate of interest = 5%

Amount to be deposited per year from age of 33 = ?

Amount to be deposited per year will form an ordinary annuity of 33 years such that deposits begin on 33rd birthday and end on 65th birthday It can be seen that

t= 0 will be at 32nd birthday

t=1 will be at 33rd birthday

t=2 will be at 34th birthday

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t= 32 will be at 64th birthday

t=33 will be at 65th birthday

We will find yearly deposit by using pmt function in excel

Formula to be used in excel: =pmt(rate,nper,pv,-fv)

Here pv = 0 as no initial amount available at t=0 or 32 birthday is 0

28 29 Amount be saved (fv) 30 Rate of interest (rate) 31 Initial amount available at t-0 (pv) 32 No of years (nper) 33 Amount to be set aside per year (pmt) PMT(G30,G32,G31,-G29 34 35 1000000 5%) ol PMT (rate, nper, pv, [fvl, [typel]

Using pmt function, we get amount to be set aside each year = 12490.04

Therefore Amount to be deposited per year = $12490 (rounded off to nearest dollar)