As a part of your savings plan at work, you have been depositing $250 per quarte

Question

As a part of your savings plan at work, you have been depositing $250 per quarter in a savings account earning 8% interest compounded quarterly for the last 10 years. You will retire in 15 years and want to increase your contribution each year from $1,000 to $ 2,000 per year, by increasing your contribution every four months from $250 to $500. Additionally, you have just inherited $10,000 which you plan to invest now to earn interest at 12% ompounded annually for the next 15 years. How much money will you have in savings when you retire in 15 years from now?

Explanation / Answer

First of all let us calculate the amount that has been accumulated by the savins for the past 10 years.

It will be $250 compounded at 2% (8/4=2%) quarterly. Which comes out to $250(1+2/100)4*10 for the first savings (as there are 4 quarters in a year)

Add this with for the second deposit $250(1+2/100)4*9

Similarly for the rest of 8 years we can calculate and then sum them up

Which comes out to 15,301.33

Now let this money sit in the bank for another 15 years which after 15 years becomes 15,301.33*(1+2/100)4*15 =$50,203.10

Now the second part is when the deposit amount is raised to $500. Again calculate as done above and add individual dposits to get the final figure =$ 58166.29

Further you also inherited some $10,000.

So at 12% per annum and 15 years later you will end up with $10,000*(1+12/100)15= $54735.65

Hence total = $58166.29 + $50,203.10 + $54735.65 = $163105.39

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