Question

Using HP 10b11 financial calculator. Need Variables to input into cal.

You plan to retire in 40 years and would like to have $2,000,000 in your savings account when you do.

(a) What amount would you have to add to your savings account at the end of each year for the next 35 years to achieve your goal if you thought that you could earn a 8% annual rate of return?

(b) What amount would you have to add at the end of each year if you thought you could earn a 10% annual rate of return?

Answer 1

See, here future value is 20,00,000 means you should have 20,00,000 after 40 years.

First, we will calculate PMT

Formula for PMT is =PMT(Rate,periods,pv,fv)

Rate is 8% or 0.08

Periods = 40 years

Pv =0

FV = 20,00,000

PMT = PMT(0.08,40,0,-2000000) = 7720.32

7720.32 is the amount that needs to be invested each year to get 20,00,000 when you retire after 40 years.

A) FV after 35 years - For this, we need to calculate FV using 35 years.

FV = FV(rate,nper,pmt,[pv])

rate = 0.08, nper(period) = 35, pmt = 7720.32, Pv = 0

FV = 1330341.38

B) If i earn @ 10%, then again PMT needs to be calculated.

Rate is 10% or 0.10

Periods = 40 years

Pv =0

FV = 20,00,000

PMT = PMT(0.10,40,0,-2000000) = 4518.83