Question

A rich uncle wants to make you a millionaire. How much money must he deposit in a trust fund paying 7% compounded quarterly at the time of your birth to yield $1,000,000 when you retire at age 56? (Round your answer to the nearest cent.)

Answer 1

Problem:

A rich uncle wants to make you a millionaire. How much money must he deposit in a trust fund paying 7% compounded quarterly at the time of your birth to yield $1,000,000 when you retire at age 56? (Round your answer to the nearest cent)

Define values:

A=1000000 (how much money waiting for us in 56 years)

r=7%=0.07 - payment by

m=4 - because each year has 4 quarter

t=56 - our retire age (how long the money will accumulate)

Use formula:

$$A = P \left(1 + \frac {r}{m}\right) ^ {m t}$$

Find P:

$$1000000 = P \left(1 + \frac {0.07}{4}\right) ^ {4 * 56}$$ $$P = \frac {1000000}{48.72} = 20525.45$$

Answer: 20525.48$.