Question #135786

To supplement your planned retirement in exactly 42 years, you estimate that you need to accumulate $220,000 by the end of 42 years from today. You plan to make equal, annual, end-of-year deposits into an account paying 8% annual interest.

a. How large must the annual deposits be to create the $220,000 fund by the end of 42 years?

b. If you can afford to deposit only $600 per year into the account, how much will you have accumulated by the end of the forty-second year?

Expert's answer

a)To get the amount of each annual payment (PMT) ;

"PMT={FVA _{42}} \u00f7(\\frac{(1+0.08)^{42}-1} {0.08})"

PMT="\\frac{220,000}{304.244}"

PMT =**$723.10**

b)To calculate the future value, FVA;

** **"FVA_{42}=PMT \u00d7(\\frac{(1+0.08)^{42}-1} {0.08})"

Future value(FVA_{42}) =$600× (304.244)

FVA=**$182,546.40**

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