A full time worker aged 25 invests $250 a month which has an average yearly return...
A full time worker aged 25 invests $250 a month which has an average yearly return of 7.2% compounded monthly.
a) The worker wants to estimate what they will have for
retirement when they are 60 years old if the rate stays constant.
Assume monthly compounding.
b) If the worker makes no further deposits and make no withdrawals
after age 60, How much will they have for retirement for age
61?
Homework Answers
Answer a.
Monthly Payment = $250
Period = 35 years or 420 months
Annual Interest Rate = 7.2%
Monthly Interest Rate = 0.60%
Accumulated Sum at age 60 = $250 * FVIFA (0.60%, 420)
Accumulated Sum at age 60 = $250 * (1.006^420 - 1) / 0.006
Accumulated Sum at age 60 = $250 * 1,889.2270
Accumulated Sum at age 60 = $472,306.75
Answer b.
Accumulated Sum at age 61 = $472,306.75 * FVIF (0.60%, 12)
Accumulated Sum at age 61 = $472,306.75 * 1.006^12
Accumulated Sum at age 61 = $472,306.75 * 1.0744
Accumulated Sum at age 61 = $507,446.37
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