Suppose you plan to retire in 40 years. If you make 10 annual investments of $...

Suppose you plan to retire in 40 years. If you make 10 annual investments of $ 1,000 into your retirement account for the first 10 years, and no more contributions to the account for the remaining 30 years. If the retirement account earns a fixed 5% annual interest, how much will you have at your retirement? Round it to two decimal places without the $ sign, e.g., 1234567.89.

Solutions

Expert Solution

This question can be broken into two parts:

Part 1: calculate the FV of annuity of first 10 contributions at the end of year 10:

We are given the following information:

PMT	1000
r	5.00%
n	10
T	1

We need to solve the following equation to arrive at the required FV

So the FV at the end of year 10 is $12577.8925355488

Part 2: now this amount is compounded for 30 years without any further contributions:

We are given the following information

PV	$ 12,577.89
r	5.00%
n	30
frequency	1

We need to solve the following equation to arrive at the required FV

So the FV is $54360.93 rounded to two decimal places

jeff jeffy answered 3 months ago

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