Suppose that you have estimated that, to provide for your retirement income, you will need $2,250,000 on deposit in your retirement account when you retire. You believe that you will earn an average of 11% on your retirement investments until you retire in 35 years. What must your annual deposits be to accumulate this total?

Question

Quizplus · Accepted Answer

We can use the future value formula for an annuity to calculate the annual deposits needed:

FV = PMT x [(1 + r)^n - 1] / r

Where FV is the future value (target retirement account balance), PMT is the annual deposit, r is the annual interest rate, and n is the number of periods (years until retirement).

Plugging in the values given:

$2,250,000 = PMT x [(1 + 0.11)^35 - 1] / 0.11

Solving for PMT:

PMT = $6,586.85

Therefore, the annual deposits needed to accumulate $2,250,000 in 35 years with an average interest rate of 11% is $6,586.85.

Suppose That You Have Estimated That, to Provide for Your