# Thread: No one can seem to help on this problem... :(

1. ## No one can seem to help on this problem... :(

Hey all, have a test tomorrow and she said a problem similar to this will be on it. All help appreciated.

On her 23rd birthday, an engineer decides to put away money. The fund pays 8% interest, compounded quarterly. She feels that $600,000 worth of purchasing power in todays dollars will be enough to pay her bills, after her 63rd birthday. Assume a general inflation rate of 6% per year. A) If she makes 160 equal quarterly deposits, what should the amount of each of these payments be-in actual dollars? B) If she plans to save by making end of the year deposits, increasing by$1000 over each subsequent year, how much is her first deposit, in actual dollars?

2. With inflation rate of 6%
$600,000 after 40 years will be $600000(1+.06)^{40}$ Let M be each instalment. At the end of 40 yr, total amount will be $M.\frac{1.02^{161}-1}{1.02-1}$ Equating these two, we get,M=5090.47 3. Originally Posted by amor_vincit_omnia Hey all, have a test tomorrow and she said a problem similar to this will be on it. All help appreciated. On her 23rd birthday, an engineer decides to put away money. The fund pays 8% interest, compounded quarterly. She feels that$600,000 worth of purchasing power in todays dollars will be enough to pay her bills, after her 63rd birthday. Assume a general inflation rate of 6% per year.

A) If she makes 160 equal quarterly deposits, what should the amount of each of these payments be-in actual dollars?

B) If she plans to save by making end of the year deposits, increasing by $1000 over each subsequent year, how much is her first deposit, in actual dollars? With inflation rate of 6%$600,000 after 40 years will be
= \$6,171,431

The 8% quarterly compounding equates to approximately 8.25% annually that must then be played agained the 6% inflation rate. A net gain of about 2.5 % for the contributions each year.