Ross has decided that he wants to build enough retirement wealth that, if invested at 6 percent...

Question:

Ross has decided that he wants to build enough retirement wealth that, if invested at 6 percent per year, will provide him with $4,300 of monthly income for 25 years. To date, he has saved nothing, but he still has 15 years until he retires. How much money does he need to contribute per month to reach his goal?

Monthly Rate:

The monthly interest rate can be found using the annual interest rate like this:

  • Monthly rate = (1 + Annual rate)1/12 - 1.

This equation is derived from the formula for the effective annual rate (EAR).

Answer and Explanation: 1

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Since all quantities are in monthly terms, we will first find the monthly rate of return, r:

{eq}r=(1+Annual \...

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How to Find the Value of an Annuity

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Chapter 21 / Lesson 15
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An annuity is a type of savings account that pays back the investor in the future. Learn the formula used to calculate an annuity's value, and understand the importance of labeling specific numbers to calculate an output over time.


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