Evelyn starts a retirement fund 10 years before retirement. She pays $100 per mo
ID: 2742144 • Letter: E
Question
Evelyn starts a retirement fund 10 years before retirement. She pays $100 per month into the annuity for 10 years. Her total investment is $12,000. Esther starts a retirement fund 20 years before retirement. She pays $50 per month into the annuity for 20 years. Her total investment is $12,000. Lois starts a retirement fund 30 years before retirement. She pays $25 per month into the annuity for 30 years. Her total investment is $9,000. In each case the annuities pay 6% interest compounded monthly.
(a) Find the value of each annuity at the time of retirement. (Round your final answer to two decimal places.) Evelyn $ Esther $ Lois $
(B) What lesson should be learned from the answers in part
(a)? Start your savings program early for the best return.
(b) Esther will have the most money for retirement.
(c) There is always enough time to start your savings program.
(d) Evelyn will have the most money for retirement.
Explanation / Answer
Evelyn:
Pmt = $100 per month.
Nper = 10*12 = 120 monhts.
Rate = 6%/12 = 0.5%per month.
Present value($) = 0.
Compute the Future value of the retirement = FV = FV(Rate,Nper,Pmt,PV) = FV(0.5%,120,100,0) = $16387.93.
Therefore, the value of the investment at retirement is $16387.93.
Esther:
Pmt = $50 per month.
Nper = 20*12 = 240 monhts.
Rate = 6%/12 = 0.5%per month.
Present value($) = 0.
Compute the Future value of the retirement = FV = FV(Rate,Nper,Pmt,PV) = FV(0.5%,240,50,0) = $23,102.04.
Therefore, the value of the investment at retirement is $23,102.04.
Lois:
Pmt = $25 per month.
Nper = 30*12 = 360 monhts.
Rate = 6%/12 = 0.5%per month.
Present value($) = 0.
Compute the Future value of the retirement = FV = FV(Rate,Nper,Pmt,PV) = FV(0.5%,360,25,0) = $25,112.88.
Therefore, the value of the investment at retirement is $25,112.88.
b.
The correct answer is option A.
Start the retirement plan as early as possible as the number of periods increases the value of the retirement increases even then the contibution is less. So start early and earn wealthy.
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