Consider a person who begins contributing to a retirement plan at age 25 and con
ID: 2625974 • Letter: C
Question
Consider a person who begins contributing to a retirement plan at age 25 and contributes for 40 years until retirement at age 65. For the first ten years, she contributes $3,000 per year. She increases the contribution rate to $5,000 per year in years 11 through 20. This is followed by increases to $10,000 per year in years 21 through 30 and to $15,000 per year for the last ten years. This money earns a 9 percent return. First compute the value of the retirement plan when she turns age 65. (Do not round intermediate calculations and round your final answer to 2 decimal places.)
Compute the annual payment she would receive over the next 40 years if the wealth was converted to an annuity payment at 8 percent. (Do not round intermediate calculations and round your final answer to 2 decimal places.)
Explanation / Answer
End of
Age
Contribution
Total Wealth
25
$3,000.00
$3,000.00
26
$3,000.00
$6,270.00
27
$3,000.00
$9,834.30
28
$3,000.00
$13,719.39
29
$3,000.00
$17,954.13
30
$3,000.00
$22,570.00
31
$3,000.00
$27,601.30
32
$3,000.00
$33,085.42
33
$3,000.00
$39,063.11
34
$3,000.00
$45,578.79
35
$5,000.00
$54,680.88
36
$5,000.00
$64,602.16
37
$5,000.00
$75,416.35
38
$5,000.00
$87,203.83
39
$5,000.00
$100,052.17
40
$5,000.00
$114,056.87
41
$5,000.00
$129,321.98
42
$5,000.00
$145,960.96
43
$5,000.00
$164,097.45
44
$5,000.00
$183,866.22
45
$10,000.00
$210,414.18
46
$10,000.00
$239,351.45
47
$10,000.00
$270,893.08
48
$10,000.00
$305,273.46
49
$10,000.00
$342,748.07
50
$10,000.00
$383,595.40
51
$10,000.00
$428,118.99
52
$10,000.00
$476,649.70
53
$10,000.00
$529,548.17
54
$10,000.00
$587,207.50
55
$15,000.00
$655,056.18
56
$15,000.00
$729,011.23
57
$15,000.00
$809,622.25
58
$15,000.00
$897,488.25
59
$15,000.00
$993,262.19
60
$15,000.00
$1,097,655.79
61
$15,000.00
$1,211,444.81
62
$15,000.00
$1,335,474.84
63
$15,000.00
$1,470,667.58
64
$15,000.00
$1,618,027.66
PMT =
($135,688.06)
End of
Age
Contribution
Total Wealth
25
$3,000.00
$3,000.00
26
$3,000.00
$6,270.00
27
$3,000.00
$9,834.30
28
$3,000.00
$13,719.39
29
$3,000.00
$17,954.13
30
$3,000.00
$22,570.00
31
$3,000.00
$27,601.30
32
$3,000.00
$33,085.42
33
$3,000.00
$39,063.11
34
$3,000.00
$45,578.79
35
$5,000.00
$54,680.88
36
$5,000.00
$64,602.16
37
$5,000.00
$75,416.35
38
$5,000.00
$87,203.83
39
$5,000.00
$100,052.17
40
$5,000.00
$114,056.87
41
$5,000.00
$129,321.98
42
$5,000.00
$145,960.96
43
$5,000.00
$164,097.45
44
$5,000.00
$183,866.22
45
$10,000.00
$210,414.18
46
$10,000.00
$239,351.45
47
$10,000.00
$270,893.08
48
$10,000.00
$305,273.46
49
$10,000.00
$342,748.07
50
$10,000.00
$383,595.40
51
$10,000.00
$428,118.99
52
$10,000.00
$476,649.70
53
$10,000.00
$529,548.17
54
$10,000.00
$587,207.50
55
$15,000.00
$655,056.18
56
$15,000.00
$729,011.23
57
$15,000.00
$809,622.25
58
$15,000.00
$897,488.25
59
$15,000.00
$993,262.19
60
$15,000.00
$1,097,655.79
61
$15,000.00
$1,211,444.81
62
$15,000.00
$1,335,474.84
63
$15,000.00
$1,470,667.58
64
$15,000.00
$1,618,027.66
PMT =
($135,688.06)
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