You want to be a millionaire when you retire in 40 years. you can earn a 12.5 percent annual return How much do you have to save each month if you can earn an annual return of 9.7 percent

Instructions are below.

Explanation:

Giving the following information:

You want to be a millionaire when you retire in 40 years. y

We have two different investment opportunities. One earning 12.5% compounded annual and the other 9.7% compounded monthly.

For both investments, we need to use the following formula:

FV = {A*[ (1+i) ^n-1]}/i

A = annual deposit

Isolating A:

A = (FV*i) / {[ (1+i) ^n]-1}

First option:

A = (1,000,000*0.125) / [ (1.125^40) - 1]

A = 1,134.31

Second option:

i = 0.097/12 = 0.008083

n = 40*12 = 480

A = monthly deposit

A = (1,000,000*0.008083) / [ (1.008083^480) - 1]

A = 173.21