Let's say you want to retire in 20 years with a million dollars. You invest some money in a mutual fund that expects to earn an average of 8% per year compounded monthly. How much money do you need to invest?
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Solve |
Step |
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*** i = 0.08 ÷ 12 » 0.006 |
k = 12, r = 0.08, Monthly means 12 times a year |
| PV = FV(1 + i)-kn = FV ÷ (1 + i)kn | Find the Present Value |
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PV = 1,000,000 ÷ (1 + 0.006)12(30) |
FV = 1,000,000, n = 20 years |
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PV = 1,000,000 ÷ (1 .006)360 » 91,443.37 |
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| You would have to invest $91,443.37 to earn a million dollars after 20 years.. (before taxes) | |
| *** Don't round. Enter 1000000 ÷ (1 + 0.08 ÷ 12) xy (12 × 30) [enter or =] in your calculator | |
| Hint: don't round until you are completely finished with your calculations. | |