A full-time worker aged 2525 invests $250250 a month in a fund which has an average yearly return of 7.27.2 % compounded monthmonthly. (a) The worker wants to estimate what they will have for retirement when they are 6060 years old if the rate stays constant. Assume monthmonthly compounding. (b) If the worker makes no further deposits and makes no withdrawals after age 6060 , how much will they have for retirement at age 6666 ?

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Business

Landin Hubbard

25 July, 12:25

A full-time worker aged 2525 invests $250250 a month in a fund which has an average yearly return of 7.27.2 % compounded monthmonthly. (a) The worker wants to estimate what they will have for retirement when they are 6060 years old if the rate stays constant. Assume monthmonthly compounding. (b) If the worker makes no further deposits and makes no withdrawals after age 6060 , how much will they have for retirement at age 6666 ?

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Frank Key · Answer 1

Instructions are below.

Explanation:

Giving the following information:

The number of years/months = 60 - 25 = 35*12 = 420

Interest rate = 0.072/12 = 0.006 compounded monthly

Monthly investment = $250

(a) We need to use the following formula:

FV = {A*[ (1+i) ^n-1]}/i

A = monthly deposit

FV = {250*[ (1.006^420) - 1]} / 0.006

FV = $472,306.75

(b) I assume that the monthly compounded continues.

Number of months = 6*12 = 72

We need to use the following formula:

FV = PV * (1+i) ^n

FV = 472,306.75 * (1.006^72)

FV = $726,572.28