Question

You are an avid 34 year old coffee drinker, and never miss a day without your $4.00 Starbucks caffe latte. However, you also understand the importance of the time value of money and saving for retirement early, so you set a New Year's Resolution to abstain from your coffee-drinking ways this year. At the end of the year, you will place all of your coffee savings in a retirement account. How much will this savings amount to when you retire in 30 years at the age of 65, if invested at a 7.5% annual interest rate (rounded to the nearest dollar)? Assume that the cost of the cup of coffee remains unchanged throughout the year.

Answer 1

amount accumulated by the end of year = $4.00 * 365 days

=>$1,460.

this 1,460 will be invested in retirement account for 30 years at a rate of 7.5% per annum.

amount in 30 years = present value * (1+interest rate) ^ number of years

=>1,460 *(1.075)^30

=>$12,782. ....(rounded to nearest dollar).