Question

You are saving for retirement. To live​ comfortably, you decide you will need to save $ 2 million by the time you are 65. Today is your 22nd ​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 $ 2 million in the account on your 65th ​birthday?

Answer 1

Answer:

$13232.50 should be set aside each year

Explanation:

given data

save = $2 million

by time = 65 year

today age = 22

interest rate = 5%

to find out

how much must you set aside each year to make sure that you will have $ 2 million

solution

we know here number of payment will be

no of payment = 65 - 22 + 1

+1 is add here because 1st payment is today

no of payment = 44

so future value formula is

future value = present payment $\frac{(1+r)^t -1 }{r}$   .............1

put here value here r is rate and t is no of payment

$2 million = present payment $\frac{(1+0.05)^44 -1 }{0.05}$

present payment = 13232.50

so $13232.50 should be set aside each year