Bonnie has decided to begin a retirement savings program where she will contribu
ID: 2810265 • Letter: B
Question
Bonnie has decided to begin a retirement savings program where she will contribute to an account that will accumulate tax free throughout her working life. She expects to retire in exactly 11 years from today, and her goal is to have accumulated the amount of $920 when she reaches her future retirement age.
In order to meet her goal, she will begin making MONTHLY contributions to a special account devoted to the retirement goal. Contributions to this account will begin one month from today, and she will continue placing equal monthly amounts into her retirement account for the next 11 years. What minimum amount needs to be placed in her account at the end of each month so that she'll reach her goal if the annual interest rate is 3%.
$__________________________________
Instructions: Place your answer in dollars and cents. DO NOT USE A DOLLAR SIGN OR A COMMA IN YOUR ANSWER. Work all calculations to at least four decimal points of accuracy.
Explanation / Answer
Using the Future Value of Annuity Payment function we can calculate FVA = C(1+R)^T - 1)/R 920 = C(1.0025^132) - 1)/0.0025 920/156.1583 = C C = 5.8915 Monthly Interest Rate - 0.03/12 0.0025 No of payments 11*12 132 Monthly Payments to be made will be 5.8915