Starla has decided to retire in 12 years. She has $44,000available today and wan

Question

Starla has decided to retire in 12 years. She has $44,000available today and wants to invest the money to supplement herpension plan.

A.      Assume Starlawants to accumulate $100,000by her retirement date. Will sheachieve her goal if she invests $44,000 today and earns 7%?

B.      If Starlainvests a total of $44,000 through a series of 12 equal annualinstallments instead of a single amount, would Starla accumulatethe desired $100,000? The first investment would be made one yearfrom today. Show calculations and explain what you find.

C.      If the amountcalculated in part A does not equal $100,000 approximately how manyyears would be required, assuming the same interest and equalannual deposits as above.

Explanation / Answer

A) 44,000 * 1.07 ^ 12 = 99,096 --> No, she will not reach100,000. B) 44,000 / 12 = 3,666.66 per year FV(annuity) = Payment * [(1+i)^n - 1] / i = 3,666.66 * ((1.07)^12 -1)/.07 = 65,590.99 C) 3,666.66 * ((1.07)^n - 1)/.07 = 100,000 Solving for n, we get n = 15.78 years. Therefore, roundingup, we see n = 16 years.

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.