Question

In: Finance

Hal​ Thomas, a 30​-year-old college​ graduate, wishes to retire at age 65. To supplement other sources...

Hal​ Thomas, a 30​-year-old college​ graduate, wishes to retire at age 65. To supplement other sources of retirement​ income, he can deposit $2,400 each year into a​ tax-deferred individual retirement arrangement​ (IRA). The IRA will earn a return of 13​% over the next 35 years.
a.If Hal makes​ end-of-year $2,400 deposits into the​ IRA, how much will he have accumulated in 35 years when he turns  
65​?
b.If Hal decides to wait until age 40 to begin making​ end-of-year $2,400 deposits into the​ IRA, how much will he have accumulated when he retires 25 years​ later?

Solutions

Expert Solution

The fund accumulated in IRA can be calculated using excel's FV function.

FV(Rate,NPER,PMT,PV,TYPE)

Rate = 13%

NPER = 35 (for case (a)) & 25 (for case (b))

PMT = $2,400

PV = 0 (as there is no value in the fund as of now)

TYPE = 0 (which indicates end of the period)

See the image below


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