Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
![**Problem Description**
John is 30 years old and aims to have 1 million dollars in savings by the time he retires at 65. He plans to open a savings account that pays 4% interest compounded quarterly, and he will be making quarterly deposits of $250 into the account.
To reach his goal of 1 million dollars, John will need to make an initial deposit of $[blank].
**Time Value of Money Solver**
*Enter the given values.*
- **N =** 0
*Number of Payment Periods*
- **I:% =** 0
*Annual Interest Rate as a Percent*
- **PV =** 0
*Present Value*
- **PMT =** 0
*Payment*
- **FV =** 0
*Future Value*
- **P/Y =** 12
*Payments per Year*
- **C/Y =** 12
*Compounding Periods per Year*
- **PMT:** END
---
**Explanation for Educational Purposes:**
The problem involves calculating the initial deposit needed to achieve a financial goal using the Time Value of Money concept. The solver helps calculate financial metrics such as present value (PV), future value (FV), and periodic payments (PMT) based on the provided inputs:
- **Number of Payment Periods (N):** Determines how many times John will make deposits.
- **Annual Interest Rate (I%):** The percentage of interest that compounds quarterly.
- **Present Value (PV):** Initial amount John needs to deposit.
- **Payment (PMT):** Regular deposits John makes, $250 quarterly in this case.
- **Future Value (FV):** John's target of 1 million dollars.
- **Payments per Year (P/Y) and Compounding Periods per Year (C/Y):** Set to 12 here, indicating a monthly basis for calculations but relevant adjustments are made for quarterly compounding.
By solving these variables, John can effectively plan how much he needs to initially deposit to meet his retirement savings target.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F51edee05-cba8-4019-9a0d-4ee43c921f56%2Fc23fc864-9954-4528-a5c9-953f52d20f13%2Fc47ils_processed.jpeg&w=3840&q=75)
Transcribed Image Text:**Problem Description**
John is 30 years old and aims to have 1 million dollars in savings by the time he retires at 65. He plans to open a savings account that pays 4% interest compounded quarterly, and he will be making quarterly deposits of $250 into the account.
To reach his goal of 1 million dollars, John will need to make an initial deposit of $[blank].
**Time Value of Money Solver**
*Enter the given values.*
- **N =** 0
*Number of Payment Periods*
- **I:% =** 0
*Annual Interest Rate as a Percent*
- **PV =** 0
*Present Value*
- **PMT =** 0
*Payment*
- **FV =** 0
*Future Value*
- **P/Y =** 12
*Payments per Year*
- **C/Y =** 12
*Compounding Periods per Year*
- **PMT:** END
---
**Explanation for Educational Purposes:**
The problem involves calculating the initial deposit needed to achieve a financial goal using the Time Value of Money concept. The solver helps calculate financial metrics such as present value (PV), future value (FV), and periodic payments (PMT) based on the provided inputs:
- **Number of Payment Periods (N):** Determines how many times John will make deposits.
- **Annual Interest Rate (I%):** The percentage of interest that compounds quarterly.
- **Present Value (PV):** Initial amount John needs to deposit.
- **Payment (PMT):** Regular deposits John makes, $250 quarterly in this case.
- **Future Value (FV):** John's target of 1 million dollars.
- **Payments per Year (P/Y) and Compounding Periods per Year (C/Y):** Set to 12 here, indicating a monthly basis for calculations but relevant adjustments are made for quarterly compounding.
By solving these variables, John can effectively plan how much he needs to initially deposit to meet his retirement savings target.
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