Your investment goal is to have $3 000 000 in 40 years for retirement.You decide to invest in a mutual fund today that pays 12% per year compounded monthly.How much must you invest at the end of each month to meet your investment goal? Round to the nearest $1.
A)$245
B)$255
C)$285
D)$305

Question

Quizplus · Accepted Answer

We need to use the formula for annuity payments to find out how much to invest each month:
PMT = (PV*r)/(1-(1+r)^-n)
PV = present value (amount we need to have in 40 years)
r = monthly interest rate (12%/12 = 1%)
n = number of months (40 years * 12 months/year = 480 months)
PMT = amount to invest each month
PMT = (3 000 000*0.01)/(1-(1.01)^-480) = $254.67 (rounded to the nearest $1, the answer is B)

Your Investment Goal Is to Have $3 000 000 in 40