Question

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 $1,000,000 when you retire at age 58? (round your answer to the nearest cent.)

Answer 1

The money to be deposited or the present value is $10,110.2

Future value (FV)= $1,000,000

Interest rate (i)= 0.08

Since it is compounded quarterly, thus

0.08/4 = 0.02

Number of periods = Retirement age (n)= 58

58 × 4

= 232 quarters

Calculating the present value following the formula:

PV= FV/(1+i)^n

Substituting the values -

PV= 1,000,000 / (1.02^232)

PV= $10,110.21

The money to be deposited is $10,110.2

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