Question

I need help solving part c but you need part b for part c.

b. If you are 25 years old and you want to be a millionaire by age 65, how much must you need to invest monthly, if you can earn 10.5 percent per year return over that period?

c. If you also had a lump sum of $20,000 at age 25, how much less must you invest per month if you want to retire at age 65, using the information given in part b above.

Answer 1

b.Information provided:

Future value= $1,000,000

Time= 40 years*12= 480 months

Interest rate= 10.5%/12= 0.8750% per month

Enter the below in a financial calculator to compute the monthly investment:

FV= 1,000,000

N= 480

I/Y= 0.8750

The value obtained is 135.70.

Therefore, the amount of monthly investment is $135.70.

c. Information provided:

Future value= $1,000,000 - $20,000= $980,000

Time= 40 years*12= 480 months

Interest rate= 10.5%/12= 0.8750% per month

Enter the below in a financial calculator to compute the monthly investment:

FV= 80,000

N= 480

I/Y= 0.8750

The value obtained is 132.99.

The amount of monthly investment is $132.99

= $135.70 - $132.99

= $2.71.

Therefore, $2.71 has to be invested less every month.

In case of any query, kindly comment on the solution.