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I'm working on the question:

Bob is beginning his work life and intends to retire in 40 years. He decides to pay 400 dollars at the end of each month into a retirement savings account for the next 40 years. He wants to collect $1,000,000 by retirement. What is the minimum effective annual interest rate needed to achieve this?

I'm heading to a wedding in another province tomorrow so I need to have the assignment finished. Unfortunately the professor hasn't taught this topic yet, so I have little idea where to start.

I was considering using the future value equation to determine the interest rate, but I have a feeling this isn't the proper approach. Any help is appreciated! Thank you!

user3472798
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  • Is it an option for you use a financial calculator for your solution? Stating that could make a huge difference in the sorts of answers that users may post which would be helpful for you. – MathAdam Oct 10 '15 at 16:20

1 Answers1

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Calculating the future value of the payments is a right idea. The future value has to be equal to $1,000,000$.

The equation is $400\cdot \Large{ \frac{(1+\frac{i}{12})^{12\cdot 40}-1}{\frac{i}{12}}}\normalsize{=1,000,000}$

$i$: interest rate per year

This equation cannot be solved algebraically. The best way it to use a calculator. I typed in the equation here and got a result.

callculus42
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