Problem 634 Calculating Annuity Payments LO1 You want to be

Problem 6-34 Calculating Annuity Payments [LO1] You want to be a millionaire when you retire in 40 years. How much do you have to save each month if you can eam an annual return of 11.7 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g-, 32.16.) Savings per month How much do you have to save each month if you wait 15 years before you begin your deposits? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Savings per month How much do you have to save each month if you wait 25 years before you begin your deposits? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Savings per month

Solution

Future value = $ 1 million or $1,000,000 (represented in negative for calculator purpose …basically to get positive payment value for savings.

1.

Savings per month = $93.43

Using financial calculator BA II Plus - Input details:

# For 40 Years

I/Y = Rate or yield = Rate /12 = 11.7/12 =

0.975

FV = Future Value =

-$1,000,000.00

N = Total number of period = Years x 12 months

480

PV = Present Value =

$0.00

CPT > PMT = Payments =

$93.43

2.

Savings per month = $561.25

Using financial calculator BA II Plus - Input details:

# For 25 Years

I/Y = Rate or yield = Rate /12 = 11.7/12 =

0.975

FV = Future Value =

-$1,000,000.00

N = Total number of period = Years x 12 months

300

PV = Present Value =

$0.00

CPT > PMT = Payments =

$561.25

3

Savings per month = $2,059.35

Using financial calculator BA II Plus - Input details:

# For 15 Years

I/Y = Rate or yield = Rate /12 = 11.7/12 =

0.975

FV = Future Value =

-$1,000,000.00

N = Total number of period = Years x 12 months

180

PV = Present Value =

$0.00

CPT > PMT = Payments =

$2,059.35

Using financial calculator BA II Plus - Input details:	# For 40 Years
I/Y = Rate or yield = Rate /12 = 11.7/12 =	0.975
FV = Future Value =	-$1,000,000.00
N = Total number of period = Years x 12 months	480
PV = Present Value =	$0.00
CPT > PMT = Payments =	$93.43