You decide to put $1200 into a retirement account each quarter for the next 30 y

Question

You decide to put $1200 into a retirement account each quarter for the next 30 years. You have been guaranteed 7.2% APR compounded quarterly. Find the value of the account (or "nest-egg'') to the nearest dollar at the end of this 30-year period. Financial Formula used (A, B or C): P = A = APR = PMT = n - Y = I If you want to live indefinitely on this money - i.e., you will live solely on the interest - what will your annual income be in retirement? (Assume that you can continue to get 7.2% APR.) (i) If you instead invest $600 per quarter the nest egg would be exactly halved (ii) If your guaranteed earnings had been 3.6% then the nest egg would be exactly halved. (iii) If you put money in over 15 years, the nest egg would be exactly halved.

Explanation / Answer

a) Value of Nest egg = $1,200 * (1 + 7.2%/4)30*4

= $10,207

b) Annual income = $10,207 * 7.2%

= $735

c) (i) True

(ii) False

(iii) False

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