Question

An engineer who believes in "save now and play later" wanted to retire in 25 years with $1 million. At 10% per year interest, to reach the $1 million goal, starting 1 year from, the engineer must annually invest:____________.

Answer 1

Answer:

He must deposit $10,168.07 per year to reach the future value of $1,000,000.

Explanation:

Giving the following information:

Final value= 1,000,000

n= 25

Interest rate= 10%

We need to calculate the annual deposit necessary to reach the goal of $1,000,000.

To calculate the annual deposit, we need to use the following variation of the future value formula:

FV= {A*[(1+i)^n-1]}/i

A= annual deposit

Isolating A:

A= (FV*i)/{[(1+i)^n]-1}

A= (1,000,000*0.1) / [(1.10^25) - 1]

A= $10,168.07

He must deposit $10,168.07 per year to reach the future value of $1,000,000.