Question

6–34. (Calculating annuity payments) (Related to Checkpoint 6.1 on page 196) Sheryl Williams wants to have a million dollars when she retires, 40 years from now. She is planning to do this by depositing an equal amount at the end of every year for the next 40 years. If her tax-free savings account pays her 9 percent per annum, how much does she need to deposit every year?

Answer 1

Future value = $1,000,000

Interest rate (i) = 9%

Time period (n) = 40 years

Annual amount to be deposited = ?

Future value ordinary annuity factor (9%, 40) = 337.8824

Future value = Annual amount to be deposited x Future value ordinary annuity factor (9%, 40)

1,000,000 = Annual amount to be deposited x 337.8824

Annual amount to be deposited = 1,000,000/337.8824

= $2,959.61

= $2,960 (If rounded to nearest whole dollar)

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