Retirement Investment Advisors, Inc., has just offered you an annual interest rate of 6.1 percent until you retire in 45 years. You believe that interest rates will increase over the next year and you would be offered 6.7 percent per year one year from today. If you plan to deposit $18,500 into the account either this year or next year, how much more will you have when you retire if you wait one year to make your deposit?

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Business

Lesly Newman

17 April, 21:39

Retirement Investment Advisors, Inc., has just offered you an annual interest rate of 6.1 percent until you retire in 45 years. You believe that interest rates will increase over the next year and you would be offered 6.7 percent per year one year from today. If you plan to deposit $18,500 into the account either this year or next year, how much more will you have when you retire if you wait one year to make your deposit?

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Ally Johnston · Answer 1

If you wait for a year, you will earn $55243.81 more.

Explanation:

Giving the following information:

Retirement Investment Advisors, Inc., has just offered you an annual interest rate of 6.1 percent until you retire in 45 years.

Next year would be offered 6.7

Deposit = $18,500.

We need to use the future value formula:

FV = PresentValue * (1+i) ^45

This year:

FV = 18500 * (1.061^45) = $265683.14

Next year:

FV = 18500 * (1.067^44) = $320926.95

If you wait for a year, you will earn $55243.81 more.