You would like to have $800,000 when you retire in 30 years. How much should you invest each quarter if you can earn a rate of 2% compounded quarterly? a) How much should you deposit each quarter? tA b) How much total money will you put into the account? LA $ c) How much total interest will you earn?
You would like to have $800,000 when you retire in 30 years. How much should you invest each quarter if you can earn a rate of 2% compounded quarterly? a) How much should you deposit each quarter? tA b) How much total money will you put into the account? LA $ c) How much total interest will you earn?
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
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![**Retirement Savings Calculation Guide**
To achieve your goal of having $800,000 when you retire in 30 years, it is important to determine how much you should invest each quarter at a rate of 2%, compounded quarterly. Below are the steps and calculations required:
a) **How much should you deposit each quarter?**
- Calculate the quarterly deposit needed to reach the desired final amount.
- [Input Box for Answer]
b) **How much total money will you put into the account?**
- Determine the total amount you will contribute over the entire period.
- [Input Box for Answer]
c) **How much total interest will you earn?**
- Calculate the interest earned by subtracting the total contributions from the final amount.
- [Input Box for Answer]
Each step will involve using the formula for the future value of an annuity due to the regular quarterly deposits and the compounding interest.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F79b24956-5ec9-4c53-911d-9c67a7f313db%2F2a1b927b-905d-4366-9f50-947058e76266%2Ftjf1dd_processed.jpeg&w=3840&q=75)
Transcribed Image Text:**Retirement Savings Calculation Guide**
To achieve your goal of having $800,000 when you retire in 30 years, it is important to determine how much you should invest each quarter at a rate of 2%, compounded quarterly. Below are the steps and calculations required:
a) **How much should you deposit each quarter?**
- Calculate the quarterly deposit needed to reach the desired final amount.
- [Input Box for Answer]
b) **How much total money will you put into the account?**
- Determine the total amount you will contribute over the entire period.
- [Input Box for Answer]
c) **How much total interest will you earn?**
- Calculate the interest earned by subtracting the total contributions from the final amount.
- [Input Box for Answer]
Each step will involve using the formula for the future value of an annuity due to the regular quarterly deposits and the compounding interest.
Expert Solution
Information;
Amount required (FV) = $800,000
Quarterly interest rate (r) = 0.005 (i.e. 0.02 / 4)
Number of Quarterly deposits (n) = 120 (i.e. 30 years * 4)
Quarterly deposit = ?
We will use future value of ordinary annuity formula.
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