Question

Question 2. Upon starting your new job after college, you've been confronted with selecting the investments for your 401(k) retirement plan. You have four choices for investing your money:

• a money market fund that has historically returned about 0.50% per year.
• A long-term bond fund that has earned an average annual return of 4.0%
• A conservative common-stock fund that has earned 6.0% per year.
• An aggressive common-stock fund that has earned 9.0% per year.

a. If you were to contribute $5,500 per year for the next 35 years, how much would you accumulate in each of the above funds?

FVOrdinary Annuity = C*(((1 + i )^n -1)/i)

C = Cash flow per period

i = interest rate

n = number of payments

FV= 5500*(((1+ 0.5/100)^35-1)/(0.5/100))

FV = 209799.58

FVOrdinary Annuity = C*(((1 + i )^n -1)/i)

C = Cash flow per period

i = interest rate

n = number of payments

FV= 5500*(((1+ 4/100)^35-1)/(4/100))

FV = 405087.24

FVOrdinary Annuity = C*(((1 + i )^n -1)/i)

C = Cash flow per period

i = interest rate

n = number of payments

FV= 5500*(((1+ 6/100)^35-1)/(6/100))

FV = 612891.29

FVOrdinary Annuity = C*(((1 + i )^n -1)/i)

C = Cash flow per period

i = interest rate

n = number of payments

FV= 5500*(((1+ 9/100)^35-1)/(9/100))

FV = 1186409.15

b. Now, change your worksheet so that it allows for less than annual investments (monthly, weekly, etc.). The annual investment will be the same, but it will be made in smaller, more frequent, amounts.

Answer 1

a)

b)

spreadsheet for monthly periods

Spreadsheet for weekly deposits assuming an year has 52 weeks