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Your brother is 25 and recently graduated college and has started working full time
Your brother is 25 and recently graduated college and has started working full time. He currently has no money. He wants to retire at age 45 as a millionaire. You recommend that he invest monthly in a stock mutual fund that would earn him 9%, compounded monthly. How much will your brother have to invest each month to achieve his goal? What would the answer be if he retired at age 70 instead?
Expert Solution
Computation of Monthly Deposit using PMT Function in Excel:
=pmt(rate,nper,pv,-fv)
Here,
PMT = Monthly Deposit = ?
Rate = Interest Rate = 9%/12 = 0.0075
Nper = Number of Periods = (45-25) years*12 months = 240 months
PV = Present Value = 0
FV = Future Value = $1,000,000
Substituting the values in formula:
=pmt(0.0075,240,0,-1000000)
PMT or Monthly Deposit = $1,497.26
Computation of Monthly Deposit using PMT Function in Excel:
=pmt(rate,nper,pv,-fv)
Here,
PMT = Monthly Deposit = ?
Rate = Interest Rate = 9%/12 = 0.0075
Nper = Number of Periods = (70-25) years*12 months = 540 months
PV = Present Value = 0
FV = Future Value = $1,000,000
Substituting the values in formula:
=pmt(0.0075,540,0,-1000000)
PMT or Monthly Deposit = $135.05
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