You would like to start saving for retirement. Assuming you are now 25 years old

ID: 2466732 • Letter: Y

Question

You would like to start saving for retirement. Assuming you are now 25 years old and you want to retire at age 55, you have 30 years to watch your investment grow. You decide to invest in the stock market, which has earned about 12% per year over the past 80 years and is expected to continue at this rate. You decide to invest $2,000 at the end of each year for the next 30 years.

Calculate how much your accumulated investment is expected to be in 30 years. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use appropriate factor(s) from the tables provided. Round your answers to 2 decimal places.)

Explanation / Answer

Solution:

The problem is related to Future Value of Annuity.

Annuity is a series of receipt or payment of equal amount for a specified period.

Here, series of equal amount (Investment Amount each year) = $2,000

Specified period (n) = 30

Rate of Interest = 12% p.a.

Since the investment is to be made at the end of each year, it is an ordinary annuity. In ordinary annuity payment / receipt is made at the end of each period.

Accumulated Investment amount in 30 years = Annual Investment x Future Value Factory for Ordinary Annuity at 12% for 30 times or FVIFA (12%, 30)

FVIFA(r%, n) can be calculated by using following formula: (1+R) {[1 – (1+R)-n} / R}

FVIFA (12%, 30) = (1+0.12) x {[1 – 1/(1+0.12)30] / 0.12} = 1.12 x (1 – 0.033378) / 0.12 = 9.0218

Accumulated Investment amount in 30 years = $2,000 x 9.0218 = $18,044

Navigate

You would like to start saving for retirement Assuming you are now 25 years old

You would like to store 8.1 J of energy in the magnetic fieldof a solenoid. The

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.

You would like to start saving for retirement. Assuming you are now 25 years old

Question

Explanation / Answer

Related Questions

Navigate