You have just made your first $5,800 contribution to your retirement account. As

Question

You have just made your first $5,800 contribution to your retirement account. Assume you earn a return of 12 percent per year and make no additional contributions. What will your account be worth when you retire in 37 years? (Do not round intermediate calculations and round your final answer to 2 decimal places, e.g. 32.16.) Future value 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.) Future value

Explanation / Answer

Retiring 37 years from now:

Number of years (n) = 37

Present value (PV) = 5,800

Rate of interest = r = 0.12

Compounded annually.

By the formula,

FV = PV (1 + r) ^n

      = 5,800 (1 + 0.12) ^ 37

      = 5,800 × 1.12^37

      = 5,800 × 66.2318428

      = 384,144.68824

      = 384,144.69 rounded (Answer)

Waiting 10 years:

This reduces the tenure of contribution; (37 – 10 =) 27 years.

FV = PV (1 + r) ^n

      = 5,800 (1 + 0.12) ^ 27

      = 5,800 × 1.12^27

      = 5,800 × 21.32488

    = 123,684.304

      = 123,684.30 rounded (Answer)

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