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14 August, 06:07

Suppose you want to have $700,000 for retirement in 30 years. Your account earns 7% interest.

a) How much would you need to deposit in the account each month?

b) how much interest will you earn?

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  1. 14 August, 06:26
    0
    If interest is compounded yearly at 7% for 30 years, to reach $700,000, you must start with a deposit of $1,000, and add monthly contributions at $589.

    a) $589 monthly if starting at $1,000

    b) $487,274.56 interest earned out of the $700,314.56 total

    Step-by-step explanation:

    1. Understand Compound Interest Formula:

    A = P (1 + r/n) ^n (t)

    A = final amount

    P = initial principal balance

    r = interest rate

    n = number of times interest applied per time period

    t = number of time periods elapsed

    2. Plug in values.

    3. Solve. (Should get based on values written above ≈ $700,314.56)

    4. To solve for interest find out how much you contributed using this "formula": x + yz = total amount contributed by depositor, where x is the starting amount, y is the number of times you added money into the account (in terms of years, so if monthly then 12 times the # of years), and z is the amount contributed each time.

    5. The answer to #4 in this case would be $213,040.00. It may differ if you changed the values from what I wrote in the "answer section".

    6. You can now subtract this number from the total you solved for in #3. The answer should be $487,274.56 (or it may differ if you chose different values from the "answer section").

    **see screenshots for more information ...
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