Assume that you are setting up your retirement plan by considering two investment plans together. (your retirement in 30 years). You want to earn a total of $1,000,000 after 30 years from two investment plans.
o First investment plan: You currently have $40,000 in the bank and decide to invest the $40,000 in a money market account for 30 years which you feel will generate a return on 6% per year.
o Second investment plan: You also intend on investing additional money at the end of each year for 30 years in a stock market mutual fund that you believe will return 10% per year.
Question:
In your second investment plan, if you make 30 equal annual investments at the end of each year for 30 years into the stock market mutual fund, how much will you need to invest each year in order to have a total of $1,000,000 from both investment plans after 30 years?
(Total of $1,000,000 is the sum of your two investments after 30 years)