Question

You just received a $335,000 insurance settlement. Because you are a savvy investor, you have decided to set the money aside for your retirement. Currently, you are planning to retire in 30 years. Your bank gives you two options. Option 1: You can invest the entire amount ($335,000) at 8% compounded annually or Option 2: $300,000 at 10% compounded annually. About how much more will you have in your account on the day you retire if you choose option 2?

SOLVE THE PROBLEM STEP BY STEP THE ANSWER is $1,863,831

Answer 1

In this question we first need to compute the future value of both options:

Option 1 future value is computed as follows:

= $ 335,000 x 1.08³⁰

= $ 3,370,990 Approximately

Option 2 future value is computed as follows:

= $ 300,000 x 1.10³⁰

= $ 5,234,821 Approximately

So the amount in option 2 will be greater than the amount in option will be:

= $ 5,234,821 -  $ 3,370,990

= $ 1,863,831

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