In: Finance
Step 1 | ||||
Calculation of future value of annuity at the end of 35th year | ||||
We can use the future value of annuity formula to calculate this value. | ||||
Future value of annuity = P x {[(1+r)^n -1]/r} | ||||
Future value of annuity = value of savings at the age of 35 = ? | ||||
P = Annual savings = $1250 | ||||
r = rate of interest per annum = 5.7% | ||||
n = no.of years = 15 | ||||
Future value of annuity = 1250 x {[(1+0.057)^15 -1]/0.057} | ||||
Future value of annuity = 1250 x 22.75103 | ||||
Future value of annuity = $28,438.79 | ||||
Future value of savings at the age of 35 = $28,438.79 | ||||
Step 2 | ||||
Calculation of value of savings at the age of 65 | ||||
We can use the future value of sum formula to calculate this value. | ||||
Future value of sum = P x (1+r)^n | ||||
Future value of sum = Future value of value calculated in step 1 at the end of 65th year = ? | ||||
P = Value calculated in step 1 = $28438.79 | ||||
r = rate of interest per annum = 5.7% | ||||
n = no.of years = 30 | ||||
Future value of sum = 28438.79 x (1+0.057)^30 | ||||
Future value of sum = 150024 | ||||
The answer is | ||||
Value of savings at the age of 65 = $1,50,024 | ||||