http://www.jagoinvestor.com/2008/09/3-most-important-formulas-you-should.html
Vikas is planning his retirement , and planning to invest 5,000 per month in a Mutual fund for 20 yrs where he expects a return of 15% , then take out all the amount after 20 yrs and then put it in a FD for 15 yrs which gives him 9.5% return .
Here , we there are two parts
A. He makes monthly payment for 20 yrs (here we have to apply annuity)
B. then he takes the money out after 20 yrs and then put it in FD for 15 yrs (as this is one time payment , here we will apply compound interest)
A )
n = 240 and i = 1.25% (as the payment are monthly)
A = P * [{(1+i)^n - 1 }/i] * (1+i) (if payment are being made at the start)
His money after 20 years = [5,000 * (1 + .0125)^240 - 1) / .0125] * ( 1.0125) = 75,80,000 (75 lacs)
Or use this calculator
http://www.investopedia.com/calculator/fvannuitydue.aspx
with the values
Interest Rate Per Time Period: 1.25 % (15/12 months)
Number of Time Periods: 240 (12 * 20 Years)
Payment Value: 5000 (per month)
Future Value: 7,579,774.87 (75 Lakhs)
Now he invests this money into a FD for 15 yrs at 9.5% .
B) Final amount = 75,80,000 * (1.095)^15 = 2,95,00,000 (2.95 crores OR 29.5 millions)
So his final corpus will be 2.95 crores .
You can use this calculator also
http://www.investopedia.com/calculator/annuityfv.aspx
Interest Rate Per Time Period: 9.5
Number of Time Periods: 15
Present Value: 7580000
Future Value: 29,572,020.14 (2.95 crores)
Vikas is planning his retirement , and planning to invest 5,000 per month in a Mutual fund for 20 yrs where he expects a return of 15% , then take out all the amount after 20 yrs and then put it in a FD for 15 yrs which gives him 9.5% return .
Here , we there are two parts
A. He makes monthly payment for 20 yrs (here we have to apply annuity)
B. then he takes the money out after 20 yrs and then put it in FD for 15 yrs (as this is one time payment , here we will apply compound interest)
A )
n = 240 and i = 1.25% (as the payment are monthly)
A = P * [{(1+i)^n - 1 }/i] * (1+i) (if payment are being made at the start)
His money after 20 years = [5,000 * (1 + .0125)^240 - 1) / .0125] * ( 1.0125) = 75,80,000 (75 lacs)
Or use this calculator
http://www.investopedia.com/calculator/fvannuitydue.aspx
with the values
Interest Rate Per Time Period: 1.25 % (15/12 months)
Number of Time Periods: 240 (12 * 20 Years)
Payment Value: 5000 (per month)
Future Value: 7,579,774.87 (75 Lakhs)
Now he invests this money into a FD for 15 yrs at 9.5% .
B) Final amount = 75,80,000 * (1.095)^15 = 2,95,00,000 (2.95 crores OR 29.5 millions)
So his final corpus will be 2.95 crores .
You can use this calculator also
http://www.investopedia.com/calculator/annuityfv.aspx
Interest Rate Per Time Period: 9.5
Number of Time Periods: 15
Present Value: 7580000
Future Value: 29,572,020.14 (2.95 crores)
