Question

This is Section 5.3 Problem 38:

John is 28 years old and plans to retire at 67. He wants to have a fund at 67 that will let him perpetually spend $4,500 a month after retirement. Assume a continuous money flow.

Answer the following. Round your answers (at the last step) to integers.

(a) Suppose that after his retirement John puts the money in a fund paying interest at an annual rate of 4.2%, compounded continuously. Then John will need $1,285,714 for his retirement.

(b) Suppose that John starts to invest a fixed amount each month from now until he retires, in a fund that pays interest at an annual rate of 6.2%, compounded continuously. Then he should invest $__________ each month.

(How do you get part B)

Answer 1

Monthly payment can be calculated using PMT function on a calculator with BEGIN mode N-39 x 12 = 468 months, I/Y 6.2%/12 = 0.5167%, PV-O, FV-1285714 >Compute PMT- $650.86 should be invested every month.