Question

Lab 3: Saving for Retirement Lab Part 1: The Importance of Starting Early. Because 401(k) accounts and annuities are an example of the power of compound interest, an amazing amount of growth occurs in the later years of the 401(k) or annuity. This can be calculated with the formula 12M*((1+) "8) – 1) Balance after nt deposits = 1. Lulu started saving $200/month in a 401(k) earning 6% interest compounded monthly when she was 45 years old. How much will be in her account when she retires at age 65? 2. How much money did Lulu deposit into her account over the course of the 20 years? 3. What dollar amount of interest did her account earn? 4. Murphy started putting $100/month into his 401(k) earning 6% APR when he was 25 years old. How much will be in his account when he retires at age 65, if interest is compounded monthly? 5. How much money did Murphy deposit into his account over the course of the 40 years? 6. What dollar amount of interest did his account earn? 7. Murphy's account earned how much more interest than Lulu's account?

Answer 1

she will be 65 1. Amount in Lulus account, when - 12xM x [b+99*. ) Putting the values in the formele, M=200 r = 0.06 n = 12 t - 20 - 12x200 (CI+ 005 j2*20_1) 0.06 $92408-18 2. Total Amount Lule Deposited in her account= 200x12x20 = $48000 3. Amount of interest, her account earned, Total Amount Deposited = = = Total Amount after 20 years - 92408-18 - 48000 $44,408.18 4. Amount in Murphy's account, when he will be 65 = 12xMx (C1+994-1) Putting the values in the formula, M=100 er = 0.06 n = 12 t = 40

= 12x100x ((1+0,0%) 23.01) 0.06 = $199149.07 I Amount that Murphy deposited in her account loox50x12. = $48,000 Total Interest earned by Murphy, = 199,149.07 – 48,000 - $ 151149.07 Amount Murphy's account earned more than Lule, 1515149.07 - 44,408-18 = $106740.89