Problema Solution
A rich uncle wants to make you a millionaire. How much money must he deposit in a trust fund paying 8% compounded quarterly at the time of your birth to yield $1000000 when you retire at the age of 60?
Answer provided by our tutors
P = the principal (the money deposited)
r = 0.08 or 8% annual interest rate
t = 60 years
m = 4 compounding period per year
i = r/4 - 0.08/4 = 0.02 interest rate per period
n = t*m = 60*4 = 240 total number of compounding periods
A = $1,000,000.00
A = P(1 + i)^n
P(1 + 0.02)^240 = 1000000
P = $8,628.97
click here to see the step by step calculation
he must deposit $8,628.97.
P = the principal (the money deposited)
r = 0.08 or 8% annual interest rate
t = 60 years
m = 4 compounding period per year
i = r/m = 0.08/4 = 0.02 interest rate per period
n = t*m = 60*4 = 240 total number of compounding periods
A = $1,000,000.00
A = P(1 + i)^n
P(1 + 0.02)^240 = 1000000
P = $8,628.97
click here to see the step by step calculation
he must deposit $8,628.97.