Question

Madelyn opened a retirement account with $20,000. The fund pays 3.9% interest compounded monthly. Madelyn expects to retire in 35 years. She also does not plan to make any payments into this account. She used the TVM Solver to help her predict how much her retirement fund will be worth in 35 years (see below). What did she do incorrectly? What can she do to fix her mistake? N = 420, I% = .325, PV = -$20,000, FV = ?, P/Y = 12, C/Y = 12

a. She used the wrong value for PV. She should have used $20,000.

b. She used the wrong value for I%. She should have used 3.9.

c. She used the wrong value for P/Y. She should have used a higher number.

d. She used the wrong value for N. She should have used 35.

e. Madelyn didn’t make any mistakes.

Answer 1

(a) Did Incorrectly - She used the wrong value of I%.

(b) To fix her mistake - She should have used 3.9.

So, correct answer is Option b.

Below is the correct solution for determination of retirement fund in 35 years.