Chapter 5, #10 You have just made your first $6,000 contribution to your retirem

Question

Chapter 5, #10

You have just made your first $6,000 contribution to your retirement account. Assume you earn a return of 13 percent per year and make no additional contributions.

What will your account be worth when you retire in 35 years? (Do not round intermediate calculations and round you final answer to 2 decimal places, e.g., 32.16.)

What if you wait 10 years before contributing? (Do not round intermediate calculations and round your final answer to 2 decimal places, e.g., 32.16.)

What will your account be worth when you retire in 35 years? (Do not round intermediate calculations and round you final answer to 2 decimal places, e.g., 32.16.)

Explanation / Answer

1.

Future value = Amount invested * (1 + Interest rate)term of investment

Future value after 35 years = $6,000 * 1.1335 = $6,000 * 72.0685 = $432,411

2.

Waiting for 10 years means contributing after 10 years from now and term of investment upto retirement shall be 25 years

Future value at the time of retirement = $6,000 * 1.1325 = $6,000 * 21.2305 $127,383

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