Question

Chad Zutter, a 25 years old university graduate, and he wishes to retire at age of 65. To cover his cost of living after retiring, he deposits $2,000 each year into retirement fund. He will earn 10 percent over the fund until he retires. *

(a) If Chad makes an annual end of year payment, how much will he has when he retired. (b) If Chad decided to start saving beginning of the year, calculate the amount he will has when he retired. (c) If Chad start investing at the age 30 years old, how much will he has when he retired with annual end of the year payment. (d) Based on the answer (c) if Chad decided to save beginning of the year, calculate the amount he will has when he retired. (e) Using the findings in (a), (b), (c) and (d), recommend an option to Chad on his savings in retirement fund and do justify your answer.

Answer 1

(a) If Chad makes an annual end of year payment, how much will he has when he retired.

Using the financial calculator and set to END of year payment

N = 40 years (65-25)

I/Y = 10%

PMT = $2000 per year

PV = 0

FV = $885,185.11

B) If Chad decided to start saving beginning of the year

Using the financial calculator and set to BGN of year payment

N = 40 years (65-25)

I/Y = 10%

PMT = $2000 per year

PV = 0

FV = $973,703.62

C) If Chad start investing at the age 30 years old, how much will he has when he retired with annual end of the year payment

Using the financial calculator and set to END of year payment

N = 35 years (65-30)

I/Y = 10%

PMT = $2000 per year

PV = 0

FV = $542,048.74

D) If Chad start investing at the age 30 years old, how much will he has when if Chad decided to save beginning of the year

Using the financial calculator and set to BGN of year payment

N = 35 years (65-30)

I/Y = 10%

PMT = $2000 per year

PV = 0

FV = $596,253.61

E) He should choose option B where he started at the age of 25 and save in the beginning of the year. In that case, he will be able to save $973,703.62 at the age of 65 years which is maximum of all the options.