Question

Today is Derek's 25th birthday. Derek has been advised that he needs to have $2,633,958.00 in his retirement account the day he turns 65. He estimates his retirement account will pay 8.00% interest. Assume he chooses not to deposit anything today. Rather he chooses to make annual deposits into th retirement account starting on his 30.00th birthday and ending on his 65th birthday. How much must those deposits be? Submit Answer format: Currency: Round to: 2 decimal places. unanswered not_submitted Attempts Remaining: Infinity Derek can deposit $11,000 on each birthday beginning with his 26th and ending with his 65th. What will the rate on the retirement account need to be for him to have $3,000,000 in it when he retires on his 65th birthday? Submit Answer format: Percentage Round to: 4 decimal places (Example: 9.2434%, % sign required. Will accept decimal format rounded to 6 decimal places (ex: 0.092434)) unanswered not submitted Attempts Remaining: Infinity

Answer 1

#4]

We calculate the yearly deposit required to accumulate the required amount at retirement. The yearly saving required is calculated using PMT function in Excel :

rate = 8% (rate of return earned)

nper = 36 (number of annual deposits from 30th to 65th birthday = 36)

pv = 0 (amount currently saved is zero)

fv = 2633958 (required amount at retirement)

PMT is calculated to be $14,077.65

А1 | х v ft =PMT(8%,36,0,2633958) D F B C 1 ($14,077.65)!

#5]

The rate required on the retirement account is calculated using RATE function in Excel :

nper = 40   (number of annual deposits from 26th to 65th birthday = 40)

pmt = -11000 (Annual deposit. This is entered with a negative sign because it is a payment into the retirement account)

pv = 0 (amount currently saved is zero)

fv = 3000000 (required amount at retirement)

RATE is calculated to be 8.19%

А2 х , A .19% =RATE(40,-11000,0,3000000) D E B C 2 8