Compound interest
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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.
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Solution Summary
This shows how to use compound interest to determine how much to deposit to have a given amount.
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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 ...
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