(Related to The Business of Life: Saving for Retirement)(Future value of an ordi
ID: 2809111 • Letter: #
Question
(Related to The Business of Life: Saving for Retirement)(Future value of an ordinary annuity)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
$4,900
at the end of each year into a Roth IRA for the next
41
years. If you earn
8
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?
Explanation / Answer
Answer a.
Annual Saving = $4,900
Period of Saving = 41 years
Interest Rate = 8%
Future Value = $4,900 * FVA of $1 (8%, 41)
Future Value = $4,900 * 280.78104
Future Value = $1,375,827.10
Answer b.
Annual Saving = $4,900
Period of Saving = 31 years
Interest Rate = 8%
Future Value = $4,900 * FVA of $1 (8%, 31)
Future Value = $4,900 * 123.34587
Future Value = $604,394.76
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