Question

2. Interest Rates You are saving for retirement. To live comfortably, you decide you will need to save $1 million by the time you are 65. Today is your 23rd birthday, and you decide, starting today and continuing on every birthday up to and including your 65th birthday, that you will put the same amount into a savings account. If the interest rate is 5%, how much must you set aside each year to make sure that you will have $1 million in the account on your 65th birthday?

Answer 1

Calculate the annual payment as follows: MS-Excel → Formulas → Financials → PMT =PMT(5%,65-23,,-1000000) Function Arguments PMT 1 1 = 0.05 = 42 Rate 59 Nper 65-23 Pv Fv -1000000 Type 1 1 = number = -1000000 = number = 7394.71309 Calculates the payment for a loan based on constant payments and a constant interest rate. Rate is the interest rate per period for the loan. For example, use 6%/4 for quarterly payments at 6% APR. Formula result = $7,394.71 Help on this function | OK Cancel Therefore, the annual payment is $7,394.71.