Marvin hopes to accumulate $1,000,000 in his retirement plan by making equal contributions at the end of each month for 35 years. He is planning to earn 10.8% compounded monthly. What amount should he deposit every month?

Question

Quizplus · Accepted Answer

To find the monthly deposit amount for Marvin's retirement plan, we use the formula for the future value of an annuity, which is $FV = P \times \frac{(1 + r)^n - 1}{r}$, where $FV$ is the future value, $P$ is the monthly payment, $r$ is the monthly interest rate, and $n$ is the total number of payments. Here, $FV = \$1,000,000$, annual interest rate $= 10.8\%$, so the monthly interest rate $r = \frac{10.8\%}{12} = 0.9\%$, and $n = 35 \times 12$ months. Rearranging the formula to solve for $P$, and substituting the given values, we find that the correct monthly deposit amount is closest to option B, $213.87.

Marvin Hopes to Accumulate $1,000,000 in His Retirement Plan by Making