How do you work this finance problem, regarding investing for retirement?
Ross has decided that he wants to build enough retirement wealth that, if invested at 9 percent per year, will provide him with $4,250 of monthly income for 32 years. To date, he has saved nothing, but he still has 23 years until he retires. Required: How much money does he need to contribute per month to reach his goal? (Do not round intermediate calculations and round your final answer to 2 decimal places. Omit the "$" sign in your response.)
Public Comments
- Using the present value calculation. PV = C(1/r - 1/(r*(1+r)^n) where C = 4250, r=0.09/12, n=12*36 You get PV = 534,513.29 So ross needs $534,513.29 after 23 years Discounting $534,513.29 back at 9% per year using the formula PV = FV / ((1+r)^n) gives a new PV of $67,970.96 which is the PV now. Where r=0.09/12, n=12*23 Using the same formula PV = C(1/r - 1/(r*(1+r)^n) you solve C = $584 per month As for the decimal places, only academics care about those because assuming a 9% return every year for that long is very inaccurate anyway.
