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23 April, 20:02

When he was 40 Keefer began investing $150 per month in various securities for his retirement savings. His investments averaged a 4.5% annual rate of return until he retired at age 70. What was the value of Keefer's retirement savings when he retired? Assume monthly compounding of interest.

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  1. 23 April, 20:14
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    At retirement, Keefer will have saved for 30 (that is, 70-40) years.

    Monthly saving, P = $150, Annual rate of return, R = 4.5% = 0.045.

    Therefore, future value (FV) at the time of retirement will be;

    FV = P*[1 + (R/12) ^12*30] / (R/12)

    Substituting all the parameters;

    FV = 150*[1 + (1+0.045/12) ^360] / (0.045/12) = $113.907.92
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