Consider that you are 40 years old and have just changed to a new job. You have

Question

Consider that you are 40 years old and have just changed to a new job. You have $74,000 in the retirement plan from your former employer. You can roll that money into the retirement plan of the new employer. You will also contribute $3,000 each year into your new employer’s plan.

If the rolled-over money and the new contributions both earn a 6 percent return, how much should you expect to have when you retire in 25 years? (Do not round intermediate calculations and round your final answer to 2 decimal places.)

Explanation / Answer

We use the formula:
A=P(1+r/100)^n
where
A=future value
P=present value
r=rate of interest
n=time period.

Hence future value of $7400=$74000*(1.06)^25

=$74000*4.29187072

=$317598.4333(Approx).

Future value of annuity=Annuity[(1+rate)^time period-1]/rate

=$3000[(1.06)^25-1]/0.06

=$3000*54.864512

=$164593.536

Hence total future value=$317598.4333+$164593.536

which is equal to

=$482,191.97(Approx).

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