Chapter4: Gross Income: Concepts And Inclusions
Section: Chapter Questions
Problem 13DQ
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Question
Magnus wishes to have $1,500,00 when he retires in 44 years. What are the monthly payments he must deposit into an account that earns 2.5%?
Expert Solution
Step 1
Future value of annuity = P * [ (1+r)^n - 1 ] /r
Where,
Future value of annuity = 150000
n = 44
r = 2.50% or 0.025
P = Monthly payments
Step 2
Future value of annuity = P * [ (1+r)^n - 1 ] /r
150000= P * [ (1+.025)^44 - 1 ] /0.025
150000= P * [ (1.025)^44 - 1 ] /0.025
150000= P * [ (2.96381 - 1 ] /0.025
150000= P * [ 1.96381 ] /0.025
150000= P * 78.55232
P =150000 / 78.55232
P =$1909.55
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