ezto.mheducation.com Assignment 2 -Chapter 586 kai:FIN 505.5WT1 Su15: Home conne

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ezto.mheducation.com Assignment 2 -Chapter 586 kai:FIN 505.5WT1 Su15: Home connect. UB-TOWSON FIN 505: Summer 2 FINANCE 2-Chapter 5&6 Question 6 (of 13) alue: 10.00 points You have just made your first $5,800 contribution to your retirement account. Assume you earn an 12 percent rate of return and make no additional contributions. What will your account be worth when you retire in 37 years? (Do not round intermediate calculations and round your final answer to 2 decimal places.(e.g., 32.16)) Future value What if you wait 10 years before contributing? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) Future value Hints References eBook& Resources Hint#1 Hint#2 Check my. work

Explanation / Answer

Part A):

We need to calculate the future value of amount deposited today after 37 years. The formula for calculating future value of a single deposit is:

Future Value = P*(1+r)^n where P = Amount of Deposit, r = rate of interest and n = years.

____________

Here, P = $5,800, r = 12% and n = 37 years

Using these values in the above formula for future value, we get,

Future Value = 5,800*(1+12%)^37 = $384,144.69

_______________

Part B)

We need to calculate the future value of amount deposited today after 27 years (since we have decided to wait for 10 years before the first contribution). The formula for calculating future value of a single deposit is:

Future Value = P*(1+r)^n where P = Amount of Deposit, r = rate of interest and n = years.

____________

Here, P = $5,800, r = 12% and n = 27 years

Using these values in the above formula for future value, we get,

Future Value = 5,800*(1+12%)^27 = $123,684.31

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