Question

A small business owner contributes $4,000 at the end of each quarter to a retirement account that earns 6% compounded quarterly.

(a) How long will it be until the account is worth at least $150,000? (Round your answer UP to the nearest quarter.)

(b) Suppose when the account reaches $150,000, the business owner increases the contributions to $8,000 at the end of each quarter. What will the total value of the account be after 15 more years? (Round your answer to the nearest dollar.)

Answer 1

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

F20 B 1 Quarterly contribution Annual interest rate Quarterly interest rate Future worth of account $4,000.00 6% 1.50% $150,000.00 Quarters to reach future worth 30 10 11 2 Present value of Account Quaterly contribution Quaterly interest rate Years No. of contribution Future value at end of 15th year $150,000.00 $8,000.00 1.50% 15 60 $1,136,200

Cell reference -

A 1 2 1 Quarterly contribution Annual interest rate Quarterly interest rate Future worth of account 4000 0.06 =C3/4 150000 4. 5 Quarters to reach future worth =NPER(C4,-C2,,C5,0) 6 7 8 9 10 2 =C5 8000 =C4 Present value of Account Quaterly contribution Quaterly interest rate Years No. of contribution Future value at end of 15th year 12 13 15 =C12*4 =FV(C11, C13,-C10,-C9,0) 14 15 16

Hope this will help, please do comment if you need any further explanation. Your feedback would be highly appreciated.