assume that you contribute 380 per month to a retirement plan for 20 years. Then

Question

assume that you contribute 380 per month to a retirement plan for 20 years. Then you are able to increase the contribution to 760 per month for another 30 years. Given a 7 percent interest rate, what is the value of your retirement plan after 50 years assume that you contribute 380 per month to a retirement plan for 20 years. Then you are able to increase the contribution to 760 per month for another 30 years. Given a 7 percent interest rate, what is the value of your retirement plan after 50 years assume that you contribute 380 per month to a retirement plan for 20 years. Then you are able to increase the contribution to 760 per month for another 30 years. Given a 7 percent interest rate, what is the value of your retirement plan after 50 years

Explanation / Answer

Monthly payments for first 20 years = 380

Number of monthly payments for first 20 years = 20*12 = 240

Annual interest rate = 7% = 0.07

Monthly interest rate = 0.07/12 = 0.005833

Future value of annuity = Annuity amount*{(1+r)n-1}/r

Future value of first 20 years payments at the end of year 20 = 380*(1.005833240-1)/0.005833 = 197,952.13

Future value of first 30 years payment at the end of year 50 = 197,952.13*1.005833(30*12) = 1,606,677.97

Monthly payments from year 21 to year 50 = 760*(1*005833360-1)/0.005833 = 927,177.96

Total value of retirement plan at the end of 50 years = 1,606,677.97 + 927,177.96 = 2,533,855.93

Number of monthly payments = 30 *12 = 360

Future value of next 30 year payments at the end of year 50 = 760*

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