You plan to save $1,400 for the next four years, beginning now, to pay for a vacation. If you can invest it at 6 percent annuall
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Solution :
Given :
James needs $ 1,000,000 after 15 years.
His IRA deposit is $ 200,000 and is earning at the rate of 8% per annum.
Maturity value of $200,000 after 15 years =
= $ 634,434.
Balance fund needed after 15 years = 1,000,000 - 634,434
= $ 365,566
Therefore, the future value of the annuity is :
Here, FV = future annuity value = 365,566
A = periodical investment
k = interest rate = 8%
n = period = 15 years
∴
A = 13,464
Thus, James needs to save $ 13,464 each year end to reach his target.