Question

David Davis is 30 years and wants to retire when he is 65. So far he has saved (1) $5,670 in an IRA account in which his money is earning 8.3 percent annually and (2) $5,850 in a money market account in which he is earning 5.25 percent annually. David wants to have $1 million when he retires. Starting next year, he plans to invest the same amount of money every year until he retires in a mutual fund in which he expects to earn 9.55 percent annually. How much will David have to invest every year to achieve his savings goal? (Round answer to 2 decimal places, e.g. 15.25.) David will have to save?

Answer 1

FVA-([(1+r)An-1]:r)| Saving per year (P) Here, AlInterest rate per annum 9.55% BNumber of years CNumber of payments per per annum A:C Interest rate per period ( r) BxC Number of periods (n) Future value of annuity (FVA) 35 1 9.55% 35 $ 872,550 =1000000-5670*(1+8.3%)^35-5850*(1+5.25%)^35 3,569.24 Saving per year (P) Ş 872550.27 (((1+9.55%)^35-1):9.55%)

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