Finance Principle Essay

Question:

You decide to begin Saving for your retirement. Assume that you determine that you will need $ 300,000 when you retire in 30 years. If you can invest at 8% Compounded Quarterly and will begin Saving in 3 months (one quarter), how much will you need to deposit each quarter to have the required retirement fund?

Answer:

You decide to begin saving for your retirement. Assume that you determine that you will need $ 300,000 when you retire in 30 years. If you can invest at 8% compounded quarterly and will begin saving in 3 months (one quarter), how much will you need to deposit each quarter to have the required retirement fund?

Particulars

Value

Future value

$300,000

Rate

8% = 8%/4 = 2.0%

Time

30 = 30*4 = 120 -1 = 119

FV

C * (((1+r)t – 1) / r)

C

FV / (((1+r)t – 1) / r)

C

$300,000 / (((1+2%)119 – 1) / 2%)

C

$300,000 / 477.70

C

$628


The present value of deposits, which needs to be conducted by for the retirement purposes, is $628. Thus, for gathering $300,000 value after the retirement in 30 years $628 will mainly be deposited each quarter for the retirement fund. The time is calculated at 119 quarters, one quarter is deducted for the time taken for conducting savings.

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