How much money do you need to deposit into an account annually, if you desire $2 million dollars...

Question:

How much money do you need to deposit into an account annually, if you desire $2 million dollars in 40 years? Assume a 6% annual interest rate and annual compounding. Your first deposit will begin at the end of your first year.

Answer and Explanation:

Let

  • FVA = the future value desired = $2,000,000
  • PMT be the periodic payment
  • r be the interest rate = 6%
  • n be the number of period = 40

We will use the annuity future value formula to determine the annual deposit:

{eq}FVA=PMT*\frac{(1+r)^{n}-1}{r}\\ 2,000,000=PMT*\frac{(1+0.06)^{40}-1}{0.06}\\ PMT=\$12,923.07\\ {/eq}

The annual deposit required is $12,923.07.


Learn more about this topic:

How to Find the Value of an Annuity

from Algebra II Textbook

Chapter 21 / Lesson 15
6.8K

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