YOu want to have $1,000,000

Question

You want to have $1,000,000 in 30 years. You already have $50,000. You think you can get a 7% annual return on your money. How much per year will you have to save to get to $1,000,000?
Ignore taxes. Show your work. If you use Excel, show the formula with the parameters, and the answer. If you use a formula, provide the standard formula, the formula with terms substituted, and the answer. If you use a calculator, show the inputs and the answer. (Points : 10)

Answer 1

You currently have 50,000 and you want to end up with 1,000,000 in 30 years.  I have to assume that the amount of money you need to save will be put in right at the beginning of this 30 year period.  Accordingly, the equation you need is as follows:

 

1,000,000 = (50,000 + x)*(1.07)^30

 

Essentially, this is a compound interest problem.  You have the principal amount multiplied by the interest rate with the total period as the exponent.  Now we just solve for x.

 

1,000,000 = (50,000 + x)(7.612)

131,371.52 = 50,000 + x

81,371.52 = x

 

So, you need to save an additional $81,371.52