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Pachacha [2.7K]
3 years ago
13

When you retire 45 years from now, you want to have $1.25 million saved. You think you can earn an average of 7.6 percent on you

r investments. To meet your goal, you are trying to decide whether to deposit a lump sum today, or to wait and deposit a lump sum five years from today to fund this goal. How much more will you have to deposit if you wait for five years before making the deposit?
Business
1 answer:
Leno4ka [110]3 years ago
7 0

Answer:

$20,468.86 more if you wait

Explanation:

This is a time value of money question. You need to calculate the one time cashflow deposit (PV) as of today and as of 5 years and find the difference between the two.

<u>As of today</u>

Using a financial calculator, input the following;

Future value (FV) = 1,250,000

Interest rate (I/Y) = 7.6%

Duration of investment (N) = 45

Recurring payment (PMT) = 0

then compute PV = $<em>46,276.21</em>

<u>As of year 5,</u>

Future value (FV) = 1,250,000

Interest rate (I/Y) = 7.6%

Duration of investment (N) = 45 - 5 = 40

Recurring payment (PMT) = 0

then compute PV = $66,745.07

Therefore, you will pay (66,745.07 - <em>46,276.21) = $20,468.86 more if you wait</em>

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