Suppose you want to have $600000 for retirement in 30 years. Your account earns 9% interest compounded monthly. a) How much would you need to deposit in the account each month? b) How much interest will you earn?

Question

Mathematics

Emerson Page

17 January, 02:14

Suppose you want to have $600000 for retirement in 30 years. Your account earns 9% interest compounded monthly. a) How much would you need to deposit in the account each month? b) How much interest will you earn?

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Answers (1)

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Kadence Horne · Answer 1

a) $327.74

b) $482,021.47

Step-by-step explanation:

This sort of question is best answered using a financial calculator to compute the payment required for a particular future value. The amount of the payment will depend on whether it is deposited at the beginning of the month, or at the end. Here, we have assumed it is deposited at the end of the month.

a) The payment amount required is $327.74. (It is this amount divided by 1.0075 if deposited at the beginning of the month.)

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b) Since this payment amount is rounded up from the calculated value, the account balance will exceed $600,000 by a small amount (about $7.87). So, the interest earned will be $600,007.87 less the amount of 360 payments, $117,986.40. That interest amount is $482,021.47.