a 2 Home Insert Page Layout Formulas Data Review View Acrobat cut u-·-10-a- Merg

Question

a 2 Home Insert Page Layout Formulas Data Review View Acrobat cut u-·-10-a- Merge & Center. : $ easte B i j Format Painter Clipboard Font Alignment G4 8 06. (15 pts) After Sally graduates, she finds a job with a starting salary of 50,000, and she expects that each year she will get a 2% raise (ie, 2% more than the previous year). She decides to deposit 10% of her annual salary at the end of each year in a savings account that earns 6%. After 40 years of working, how much will she have saved for retirement? 1 10 12 13 15 16 17

Explanation / Answer

Future worth (FW) of retirement savings (deposits) is computed as follows. It is assumed that first salary and savings start with year 0.

FV Factor for year N = (1.06)40 - N

Year Salary ($) Saving ($) FV Factor @6% Compounded Savings ($) (A) (B) = (A) x 10% (C) (B) x (C) 0 50,000 5,000 10.2857 51,429 1 51,000 5,100 9.7035 49,488 2 52,020 5,202 9.1543 47,620 3 53,060 5,306 8.6361 45,823 4 54,122 5,412 8.1473 44,094 5 55,204 5,520 7.6861 42,430 6 56,308 5,631 7.2510 40,829 7 57,434 5,743 6.8406 39,288 8 58,583 5,858 6.4534 37,806 9 59,755 5,975 6.0881 36,379 10 60,950 6,095 5.7435 35,006 11 62,169 6,217 5.4184 33,685 12 63,412 6,341 5.1117 32,414 13 64,680 6,468 4.8223 31,191 14 65,974 6,597 4.5494 30,014 15 67,293 6,729 4.2919 28,881 16 68,639 6,864 4.0489 27,792 17 70,012 7,001 3.8197 26,743 18 71,412 7,141 3.6035 25,734 19 72,841 7,284 3.3996 24,763 20 74,297 7,430 3.2071 23,828 21 75,783 7,578 3.0256 22,929 22 77,299 7,730 2.8543 22,064 23 78,845 7,884 2.6928 21,231 24 80,422 8,042 2.5404 20,430 25 82,030 8,203 2.3966 19,659 26 83,671 8,367 2.2609 18,917 27 85,344 8,534 2.1329 18,203 28 87,051 8,705 2.0122 17,516 29 88,792 8,879 1.8983 16,855 30 90,568 9,057 1.7908 16,219 31 92,379 9,238 1.6895 15,607 32 94,227 9,423 1.5938 15,018 33 96,112 9,611 1.5036 14,452 34 98,034 9,803 1.4185 13,906 35 99,994 9,999 1.3382 13,382 36 1,01,994 10,199 1.2625 12,877 37 1,04,034 10,403 1.1910 12,391 38 1,06,115 10,611 1.1236 11,923 39 1,08,237 10,824 1.0600 11,473 40 1,10,402 11,040 1.0000 11,040 FW ($) = 10,81,333

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