How much should you deposit at the end of the month into an IRA that pays 8% compounded monthly to have $1million when you retire in 36 years? how much of the $1 million comes from interest?
In order to have $1 million in 36 years, you should deposit ? each month
? of the $1 million comes from interest ? Round to the nearest dollar.
Suppose you deposit x dollars at the end of each month. The annual interest rate is r = 8% compounded monthly. So the monthly rate is r/12. The total time is 36 years = 36 * 12 = 432 months.
We have the following observations.
At the end of the first month, you ...
This shows how to use compound interest to determine how much to deposit to have a given amount.