Assume that you contribute $150 per month to a retirement plan for 15 years. Then you are able to increase the contribution to $350 per month for the next 25 years. Given an 8 percent interest rate, what is the value of your retirement plan after the 40 years?

The value of the retirement plan after 40 years will be $53,474

Explanation:

First we have to find the future value of our contribution for the first 15 years and then we will be able to find the value after 25 years in order to find the value of the plan at the end of 40 years.

PV = 0

PMT = - 150

N=15

I = 8

Input these values in a financial calculator and compute FV/future value.

FV=4,072

Now we will use this future value as the present value of the start of the 25 year period to find the value of the retirement plan after 40 years, because what we have at the end of the 15 years periods is what we will have at the start of the 25 year period.

PV = - 4,072

I=8

N=25

PMT = - 350

Compute FV = 53,474