Answer:
i. The present worth of the investment is:
= $47,876.51
ii. The investment account will have $9,304,816.43 after 40 years of dumping money into it.
iii. You can withdraw $33,093.11 monthly.
Explanation:
a) Data and Calculations:
Monthly investment = $300
Rate of salary increase = 6% per year.
Monthly increment in investment = 0.5%
Interest rate = 0.75% per month
Total increment = 1.25% per month (0.5% + 0.75%)
From an online financial calculator:
N (# of periods) 480
I/Y (Interest per year) 1.25
PMT (Periodic Payment) 300
FV (Future Value) 9304816.43
Results
PV = $47,876.51
N (# of periods) 480
I/Y (Interest per year) 1.25
PV (Present Value) 0
PMT (Periodic Payment) 300
Results
FV = $9,304,816.43
Sum of all periodic payments $144,000.00
Total Interest $9,160,816.43
Starting Principal $9304816.43
Interest / Return Rate 3
Inflation Rate 0
Years to Payout 40 years
Payout Frequency Monthly
Result
You can withdraw $33,093.11 monthly.
Total interest earned: $6,579,874.12.
