Question

A young graduate engineer wants to know how much money she will need to invest each year into a uniform series sinking fund in order to accumulate an equivalent future worth of $3,000,000 at the end of 35 years in an investment account that tracks the S&P 500, which has an historical Rate of Return (ROR) of approximately 9% (25-year average-1926 to present) not accounting for inflation.

Answer 1

Equivalent future worth (F) = $3,000,000

Time period (n) = 35 years

Rate of return (i) = 9%

Calculate the annual amount to be invested -

A = F(A/F, i, n)

A = $3,000,000(A/F, 9%, 35)

A = $3,000,000 * 0.00464

A = $13,920

Thus,

The young graduate engineer has to invest $13,920 each year.