Question

Suppose Gordon is now aged 50 and plans to start saving for 15 years and will accumulate $1,500,000 at the age of 65 as his retirement fund. Suppose the required return is 9 percent compounded monthly, what will be his monthly payments with the first payment occurring one month from now?

Answer 1

He will start to make payment one month from now and will contribute each month for the next 15 years Number of period = (15*12) 180 Future value = 1,500,000 Interest rate = 9%/12 Here we are using the formula but you can also use the financial calculator and calculate the value (PMT) easily Future value of annuity = Periodic payment*((1+Interest rate) Time period -1)/Interest rate 1500000 = periodic payment* ((1+0.09/12)^180-1)/(0.09/12) Periodic payment = 1500000/(((1+0.09/12)-180-1)/(0.09/12)) 3964