Question

financial calculator

Henry calculated that if he saved $500 per month for retirement for 20 years and could earn on average a 7.5% return he would have approximately $276,865 at retirement. What would he have if he could earn 8% ?

a. $276,865

b. More than $276,865

c. Less than $276,865

d. It cannot be determined

please explain

Answer 1

Rate	Rate of interest (Nominal Rate /12)	0.62%
Period	Nos of deposits to be made (20*12)	240
PMT	Amount deposit every month	500
PV	Present Value
Type	Deposits made at beginning of the month	1
	Future Value	($277,002.61)
	Rate of interest	7.50%
	Assuming interest is Quarterly compounding
	Effective rate is = EFFECT(7.50%,4)	7.714%
	Converting Effective rate into monthly compounding
	Nominal rate is = NOMINAL(7.71%,12)	7.454%

Rate	Rate of interest (Nominal Rate /12)	0.66%
Period	Nos of deposits to be made (20*12)	240
PMT	Amount deposit every month	500
PV	Present Value
Type	Deposits made at beginning of the month	1
	Future Value	($294,524.85)
	Rate of interest	8.00%
	Assuming interest is Quarterly compounding
	Effective rate is = EFFECT(7.50%,4)	8.243%
	Converting Effective rate into monthly compounding
	Nominal rate is = NOMINAL(7.71%,12)	7.947%

So Answer is b, i.e. more than $276865.