You are graduating from college at the end of this semester and after reading th

Question

You are graduating from college at the end of this semester and after reading the The Business of Life box in this chapter, you have decided to invest $4,300 at the end of each year into a Roth IRA for the next 41 years. If you earn 6 percent compounded annually on your investment, how much will you have when you retire in 41 years? How much will you have if you wait 10 years before beginning to save and only make 31 payments into your retirement account?

How much will you have when you retire in 41 years?

How much will you have if you wait 10 years before beginning to save and only make 31 payments into your retirement account?

Explanation / Answer

If started saving one year from now:

If waited for 10 years and the started 31 years saving:

A/c balance after 41 years P×[(1+r)^n-1]÷r Here, 1 Interest rate per annum 6.00% 2 Number of years                                                                   41 3 Number of compoundings per per annum                                                                      1 1÷3 Interest rate per period ( r) 6.00% 2×3 Number of periods (n) 41 Payment per period (P) $                                                   4,300.00 A/c balance after 41 years $                                                    709,705 4300*((1+6%)^41-1)/6%

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