Question

Decision #2: Planning for Retirement Evan and Gina are 22, newly married, and ready to embark on the journey of life. They both plan to retire 45 years from today. Because their budget seems tight right now, they had been thinking that they would wait at least 10 years and then start investing $2700 per year to prepare for retirement. Gina just told Evan, though, that she had heard that they would actually have more money the day they retire if they put $2700 per year away for the next 10 years - and then simply let that money sit for the next 35 years without any additional payments - then they would have MORE when they retired than if they waited 10 years to start investing for retirement and then made yearly payments for 35 years (as they originally planned to do). Please help Evan and Gina make an informed decision: Assume that all payments are made at the END a year for month), and that the rate of return on all yearly investments will be 7.2% annually. (Please do NOT ROUND when entering "Rates" for any of the questions below) a) How much money will Evan and Gina have in 45 years if they do nothing for the next 10 years, then put $2700 per year away for the remaining 35 years? b) How much money will Evan and Gina have in 10 years if they put $2700 per year away for the next 10 years?

Answer 1

classmate Date Page i = 7.2% pa Payments PV = (1+i)-10 are made at the end of period 2700 9351 a) (1.072)"0 * 2700 (1 - 1:072 0.072 $ 17068.82 (1+i) 45 PV $ 389914.01 FY - FVio 270o I-F 1 - 1.072 0.072 37658.676 2.) FVag - F Vie (1+i)35 37658.676 (1.072) 429222-55 Fyys - FVio 391563.878) Amount grow