In the following ordinary annuity the interest is compounded

In the following ordinary annuity, the interest is compounded with each payment, and the payment is made at the end of the compounding period.

How much must you invest each month in a mutual fund yielding 11.8% compounded monthly to become a millionaire in 10 years? (Round your answer to the nearest cent.)

$______________

Solution

FV = [PMT*((1+i/n)^(n*t) - 1)]/(i/n)

FV = future Value = 1000000

PMT = ?

i = 11.8% = 0.118

n = 12

t = 10

PMT = 1000000*(0.118/12)/[(1+(0.118/12))^120 - 1]

PMT = $4398.38 = $4399