A recent college graduate begins a savings plan at age 27 by investing $400 at the end of each month in an account that earns an annual rate of 7.1%, compounded monthly. If this plan is followed for 10 years, how much should the monthly contributions be for the next 28 years in order to be able to withdraw $10,000 at the end of each month from the account for the next 25 years? Round your answer to the nearest cent.

Question

A recent college graduate begins a savings plan at age 27 by investing $400 at the end of each month in an account that earns an annual rate of 7.1%, compounded monthly. If this plan is followed for 10 years, how much should the monthly contributions be for the next 28 years in order to be able to withdraw $10,000 at the end of each month from the account for the next 25 years? Round your answer to the nearest cent. ​

Quizplus · Accepted Answer

This problem involves calculating the future value of a series of payments (also known as an annuity) and then determining the necessary monthly contributions to reach a specific withdrawal goal. Given the complexity and the specific financial formulas involved (such as the future value of an annuity formula and the present value of an annuity formula), a financial calculator or software is typically used to compute these values accurately. The correct answer, based on the information provided and using the appropriate financial formulas, is $847.94. This accounts for the growth of the initial investments over the first 10 years and the required contributions for the next 28 years to support withdrawals of $10,000 per month for 25 years, considering the specified interest rate.

A Recent College Graduate Begins a Savings Plan at Age