Question

Mr. Smith, at age 65, can expect to live for 20 years. If he can invest at 5% per annum compounded monthly, how much does he need now to guarantee himself $250 every month for the next 20 years?

Answer 1

In order to solve this, we can use the interest compound formula given as follows:

$P=\frac{A}{(1+\frac{r}{n})^{nt}}$

Where P is the principal (initial amount of money) A is the final amount, r is the interest rate and n is the number of times the interest is compounded per year