Mr Brommer knows he needs to have 600000 saved when he retir

Mr. Brommer knows he needs to have $600,000 saved when he retires so he can live in his dream shack on Waikiki Beach. If he knows of an investment that will pay 6% interest, compounded quarterly, and he saves money for 25 years, then how much must he put away each quarter in order to realize his dream?

Solution

Given Interest compounded quarterly, number of compoundings (n) in the given period of 25 years

= 25 Years X 4 Quarter per year

n = 100

i = 6 % p.a = 6 % / 4 = 1.5 % per quarter

Annuity = Future Valure / PVAF ( 100 , 1.5 % )

= $600,000 / 51.62

= $ 11,623 per quarter

Present Value Annuity Factor PVAF = 1- 1/(1+r)^n / r

n = 100

r = 1.5 %