1) If you were to start saving $5,000/year at age 20 for 15 years (a total savin
ID: 2810094 • Letter: 1
Question
1) If you were to start saving $5,000/year at age 20 for 15 years (a total savings on your part of $75,000), and didn't touch it until you retired at age 70 (35 years later), and it earned a return of 11% every year from when you started saving at age 20 to the age you retired at age 70, how much would you have?
A) $137,621
B) $968,356
C) $2,125,908
D) $6,635,924
Repeat the scenario of Question 1, only the return they are earning for the entire time is 5% instead of 11%?
A) $134,362
B) $595,608
C) $1,124,725
D) $3,012,319
Now suppose you start saving $5,000/year at age 35 instead until you retire at age 70 (35 years total for a total saving on your part of $175,000, or $100,000 more than was saving in question 4 at the same rate of return), earning 11% the whole time like in question 4, How much would you have?
A) $172,027
B) $595,608
C) $1,152,804
D) $1,707,948
Explanation / Answer
a)
Rate of Interest = 11%
Value of PMT after 15 years = Pmt *( ( 1+r)n - 1)/r = 5000* ( (1+11%)15 -1)/11% = 172,026.79
Value of above amount after next 35 years = 172,026.79 * 1.1^35 = 6635907.98
which is close to 6,635,924. hence option d is correct option.
b)
Rate of Interest = 5%
Value of PMT after 15 years = Pmt *( ( 1+r)n - 1)/r = 5000* ( (1+5%)15 -1)/5% = 107,892.82
Value of above amount after next 35 years = 107,892.82 * 1.05^35 = 595138.44
which is close to 595,608. Hence Option b is correct.
3) Rate of Interest = 11%
Value of PMT after age 35 years to age 70 years= Pmt *( ( 1+r)n - 1)/r = 5000* ( (1+11%)35 -1)/11% = 1707947.77 or 1707948
Option d is correct option
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