1You invest $1,000 in a retirement account that earns 5 percent annually. How mu

Question

1You invest $1,000 in a retirement account that earns 5 percent annually. How much will be in the account after 20 years?

2. Every year you invest $1,000 in a retirement account that earns 5 percent annually. How much will be the account after 20 years?

3. Ted wants to have $100,000 to send his three-year-old child to college. He sets up a $29 savings plan and wants to know how much he must invest at the end of each year for the next 15 years if the funds can earn 5 percent. If he could earn 7 percent, how much less will he have to invest each year?

Explanation / Answer

1. Future Value = Present Value * (1+r)^20

Future Value = 1000 * (1+0.05)^20

Future Value = 1000 * 2.6533

Future Value = $2653.30

2. Future Value after 20 years = Annual investment * FVAF (5%, 20)

Future Value = 1000 * 33.0660

Future Value = $33066

3.

Future Value = Annual Payment * FVAF ( 5%, 15)

$100000 = Annual Payment * 21.5786

Annual Payment at 5% = $4634.22

3b. Computation of Difference between 7% and 5%

Difference = Annual Payment of 5% - Annual Payment at 7%

Difference = $4634.22 - $100000 / 25.1290

Difference = $4634.22 - $3979.47

Difference = $654.75

If he could earn 7 percent, an amount of $654.75 less will be invested each year

Related Questions

Navigate

• Browse (All)
• Browse 1
• Subjects

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