Math question

Question

What if you wanted to become a millionaire and had 40 years to get ready for that goal. Assuming you could earn interest at a rate of 8% compound monthly and you started with nothing whatsoever in your investment portfolio, how much would you have to contribute to your annuity each month to achieve your goal?

Answer 1

Hi Mirian,

 

This is s a problem where you can use the future value of an annuity to find the answer

 

the formula is

 

FV = P*(((1+i)ⁿ -1)/i)

 

where

 

FV = future value

P = montly payment

i =  interest per period

N = number of periods

 

FV = 1000000

P = need to find this

i = .08/12 = .0066667

n = 40 * 12 = 480

 

 

1000000=P *(((1.006667)⁴⁸⁰ -1)/.006667)

 

1000000 = p * 3491

 

286.45 = P    (this is the monthly amount to contribute

 

Hope this helps