Your daughter is born today and you want her to be a millionaire by the time she is 35 years old.You open an investment account that promises to pay 12% per year.How much money must you deposit each year,starting on her 1st birthday and ending on her 35th birthday,so your daughter will have $1,000,000 by her 35th birthday?

Question

Quizplus · Accepted Answer

To solve this, we use the formula for the future value of a series of annuities: $FV = P \times \left( \frac{(1 + r)^n - 1}{r} \right)$, where $FV$ is the future value ($1,000,000), $P$ is the annual payment, $r$ is the annual interest rate (12% or 0.12), and $n$ is the number of payments (35). Rearranging the formula to solve for $P$ gives us $P = \frac{FV}{\left( \frac{(1 + r)^n - 1}{r} \right)}$. Plugging in the values gives $P = \frac{1,000,000}{\left( \frac{(1 + 0.12)^{35} - 1}{0.12} \right)}$, which calculates to approximately $2,317.

Your Daughter Is Born Today and You Want Her to Be